The DAX Erupts, Opens Path for Further Gains
- The DAX blasts through all resistance, enters “bull market”
- Potential from the recent rally could be quite significant
- Taking it one step at a time, focusing on price action as it unfolds
Yesterday, the DAX exploded – clearly taking out all previously noted levels of resistance. The financial media took note of the rally as well, as the German index is “officially” back in bull market territory – that is, more than 20% off the most recent cycle lows created back in February. Now that it is ‘back on top’, and everyone knows it, the DAX will probably pullback (markets are like that). Will the financial media call off the bull market if it drops back below the ‘proper’ threshold? Don’t know, don’t care.
What we do care about is the fact the index cleared some pretty major resistance levels and convincingly so. (Still want to see a strong weekly close above, first, given the long-term time-frame.)
A couple of weeks back we discussed the big picture implications of a strong break above all key resistance. In recap: the DAX overcame the May and June peaks, the 2015 downtrend-line off record highs, reclaimed the 2011 trend-line it has spent most of the year submerged beneath, a down-trend line off the April high, and then the April high, itself, which was the final obstacle.
DAX (Ger30) Daily
What has this feat done from a macro-tech standpoint? Potentially, a lot.
As we noted back on July 27, if all the above is achieved, then a large inverse head-and-shoulders pattern will have fully triggered along with what could very well be a large bull-flag within the context of the uptrend off the global financial crisis lows from ’09.
In the short-run, though, we aren’t of the mind to buy into large advances due to the rising risk of a pullback/consolidation period. A modest decline would do the index some good in re-loading the cannon for the next short-term objective around the 10876 level to be met. 10876 represents a late-2015 peak as well as an upper parallel off the Feb low.
Pulling back for a broader view, the DAX could see its way to the December high at 11432 in the not-too-distant future. And if the larger patterns are to exert their force, then a move to the old record highs of 12398 and beyond could be in the works.
Again, a strong weekly close above all key levels will be needed given the long-term timeframe we are looking at, to act as true confirmation of a significant breakout. But let’s first take it one step at a time and roll with the next objectives on hand, which is 10876. Keep the rising set of parallels since early July in mind for trend guidance.
A drop back below 10300 would bring the current leg up into serious question, but until then all appears to be well.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX.
You can email him at firstname.lastname@example.org with any questions or comments.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.