What’s inside:
- The DAX fails to garner buying interest after Monday’s reversal
- A drop below the Monday low will usher in more selling below 10100
- A bounce from here is not likely to hold a lot of power, and will be viewed as a likely selling opportunity
In our Tuesday commentary we highlighted the importance of support created from the peaks set between May and July, and how it was reinforced on Monday when the DAX tanked and reversed from that steadfast area of support.
Since then the market has worked its way lower, with each of the past two intra-day bounces becoming increasingly weaker; carving out a descending wedge formation on the intra-day time-frame. This isn’t the most inspiring price action if you are looking for a rally, and strengthens the case for shorts.
Without buyers stepping up the 9/12 low at 10320 looks likely to break soon. A close below the Monday swing low increases potential for a move to the 8/3 low of 10092, which will roughly coincide with a back-side retest of the broken 2015 downtrend line off record highs.
The descending wedge could break to the upside, can’t rule that out even if the less likely scenario. However, a bounce from here is not likely to hold a lot of power at this time without seeing another ‘flush move’ first. A recovery higher from here could also set up a lower high scenario from the double-top peaks (8/15, 9/8).
In any event, the market is postured more bearish than bullish, and expectations of seeing prices drop lower from here are high. If the DAX moves higher we will view it as an opportunity to sell, not chase higher.
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---Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinonFX.
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