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DAX: Gaps Under Support, Holding Below Will Be Key

DAX: Gaps Under Support, Holding Below Will Be Key

Paul Robinson, Strategist

What’s inside:

  • The DAX gaps below 10440/510 support zone and trend-line
  • Barring a reversal, looking for lower prices with US markets looking set to decline
  • Important support and resistance outlined

In yesterday’s commentary, we suggested the DAX could come under pressure following the bearish reversal off the top-side parallel. The turn lower is thus far creating yet another lower high in a sequence of lower highs, lower lows developing over the course of the past month.

Today’s gap lower is taking the DAX below the trend-line off the June 24 low and support zone penciled in at 10440/510. You know what that means – old support becomes new resistance.

Barring a gap-and-trap reversal today, we look for the DAX to continue moving lower from here with the help of the U.S. market. We noted on Wednesday that we are taking cues for global stocks from the world’s strongest stock market. When the strong turn weak, the weak turn really weak (Japan/Europe sans UK).

The S&P 500 broke out of its wedge pattern on Tuesday, but today we are seeing the index further its losses (so far in overnight trade) below the Feb 11 trend-line. A break of important trend support is only a step away from a significant breakdown below the 9/12 low, thus confirming its break of the Feb 11 trend-line as well as carving out an important lower low.

Back to the DAX...The next important support level doesn’t lie until the Sep 30 gap-down day low of 10190, then the backside of the trend-line running south off the 2015 record highs. Resistance, as pointed out earlier, falls in the vicinity of 10440/510. To turn the picture bullish, we would need to see a recovery in the days ahead above resistance and the top-side parallel running off the 9/8 peak. It's still possible for the lower high, lower low sequence to develop into a bull-flag, but not a scenario on the table at this time.

DAX: Daily

DAX: Gaps Under Support, Holding Below Will Be Key

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Our Q4 forecasts are out for FX, commodities, and equity indices; you can check them out in our free trading guides section.

---Written by Paul Robinson, Market Analyst

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You can follow Paul on Twitter at @PaulRobinonFX.

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