What’s inside:
- The DAX countertrend move turned out to be a pullback for a push to new highs
- In the process it overtook all major resistance
- Barring a reason for sellers to sell, index viewed constructive on pullbacks
On Friday, the last time we discussed the DAX, it was expressed that the bounce higher following the sharp reversal to start the month was viewed as a counter-trend move that would likely result in a move lower towards and under 10k. This has proven to be wrong and the support level we had penciled in around 10100 proved to be worth more than the attention placed on it.
Resistance has proven to be nothing more than minor stopping points since bouncing nearly 400 points since last Wednesday. Risk sentiment has been buoyed across the globe in the past week, from Asia to Europe to the U.S.
August can be one of the more volatile months of the year, if there is a catalyst. However, without a reason for sellers to sell, and markets sitting perched high in the sky (US indices at record highs), volatility will remain absent as trading volumes during the month can also be some of the worst of the year. Summer doldrums.
This morning, the DAX is attempting to overtake the April peak of 10486. If it can do so on a closing basis, the German index will have overtaken the downtrend line off the 2015 high, the weekly 2011 trend-line it traded under for most of the year, and the highest peak of 2016 as well. This leaves little to keep the DAX from continuing to move higher - This was discussed this a couple of weeks ago.
In the short-run, buying into the several hundred-point climb without first seeing a pullback doesn’t offer the best risk/reward opportunity. But should the index clear the April peak on a closing basis, pullbacks could offer opportunity for would-be longs to enter barring selling becomes aggressive.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
You can email him at instructor@dailyfx.com with questions or comments.
