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DAX: Dip Buyers at Support Under Assault

DAX: Dip Buyers at Support Under Assault

Paul Robinson, Strategist

What’s inside:

  • The DAX bounces from support, but…
  • Now quickly rolling back over, which…
  • Has us thinking about the down-side again

The DAX held its ground yesterday by not only staying above the 10320 level we had penciled in as a key breakdown point, but it also managed to put together a bounce alongside the rest of Europe and the U.S.

While the descending triangle on the short-term charts suggested support would give way, it never did – support is support until it isn’t. Sitting on support might not alone make for a compelling reason to buy a market without price action to corroborate, but at the very least acknowledging support keeps you sidelined from commencing operations from the short-side and taking what we deem to be unnecessary losses.

OK, with that said, yesterday’s bounce is coming under pressure again in the early hours, and has us thinking about the downside again. Could today’s dip back lower just be see-saw gyrations near a big support level before launching back higher? Sure. However, again, price action overall is not encouraging given the steadfast support from which the DAX is attempting to move higher off of. The market’s lack of response off such a big level is reason for longs to be concerned.

The spring/summer peaks in the mid-10300s saw to it that the market quickly turned higher on 8/22 as well as on Monday when a 2% bounce unfolded. So, no question we are testing a key level and holding it thus far.

DAX: Dip Buyers at Support Under Assault

The descending wedge we were looking at yesterday broke to the upside, but not a favorite play of ours to see such a steep pattern break out to the upside (even if off support); more work along support and a larger pattern development would have been preferred to get us excited about the long-side.

A larger pattern development may in fact be exactly what is going on here. Yesterday’s peak in the DAX (Ger30) and decline into today is putting in the possibility of seeing a lower high from Monday while maintaining a flat bottom support level; a broader descending triangle. It will require more work with another test of recent lows and a bounce before filling out the rest of the pattern, but it’s certainly a possibility.

DAX: Dip Buyers at Support Under Assault

If today’s decline holds with a higher low from yesterday, then we may at some point begin to see something which suggests the low has in fact been put in and force us to turn to a more sanguine outlook for German stocks.

So, in conclusion, for now, the plan is to wait for a better looking descending wedge to form and go with the break, or turn outright bearish on a daily close below 10320, or if a higher low can develop and encouraging price action can play out soon after we may begin to consider bullish alternatives. That may sound like a ‘wish-washy’ outlook, but given where we are on the charts and how price action is behaving we feel we will be best served by being patient and waiting for further confirmation one way or another.

Hone your skills as a technical trader, and check out one of several free trading guides designed for traders of all levels of experience.

---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinonFX.

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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