DAX Flips the Channel, 10800 Back in Focus
- The DAX trades from below eyed channel to above
- Cautiously bullish in the short-term
- Looking for area surrounding 10800, but still viewed as a potential turning point upon test
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When we looked at the DAX on Friday it was positioned quite a bit differently than it is today. The market was gapped below the lower parallel of the channel off the 11/14 high, and looked ready to make a move on the trend-line rising up from the June low. A Little momentum in one direction, even if for just a few days, seemed to have finally arrived. But it wasn’t to be. That’s the environment we are in. Choppy, but still tradeable with patience, proper time-frames, and a willingness to cut and run at the first sign of trouble.
This is what we had to say on Friday regarding the lower parallel of the 11/14 channel: “A break back above wouldn’t immediately turn the trend around, but would be reason for caution on new short positions.” Friday’s close back inside the channel was our first clue to lay off the shorts. Monday’s rip on the outcome of the referendum in Italy fully backed up that notion.
With yesterday's rally the DAX is now sticking out above the upper parallel. As long as it doesn’t sink back inside the channel, perhaps using it as support on a minor pullback, another test of resistance surrounding 10800 looks like the next likely move. A push into this staunch area of resistance will be viewed initially as a spot for the market to potentially fail again as it has several times since August. It will remain resistance until it’s overcome. Simple as that.
Just as we said with regard to the market trading below the lower parallel on Friday, if the DAX falls back inside the upper parallel, then so does the upward bias. It won’t turn us outright bearish, but caution on new long positions will be warranted.
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---Written by Paul Robinson, Market Analyst
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