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DAX: Major Breakout in Progress

DAX: Major Breakout in Progress

What’s inside:

  • The DAX moved to its best levels of the year on the open
  • A solid close above peaks would be a big positive, while…
  • A failure back below quadruple peaks would be a short-term negative

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Yesterday, when we looked at the DAX we made note of the break outside of the channel running lower off the 11/14 peak, and as long as it stayed above the upper parallel it was poised to make another attempt at major resistance around the 10800 mark. Yesterday was a solid showing, and with that the market is trading above an area this morning it has been unable to push through on four prior attempts since August.

One of two scenarios will pique our interest.

The first, and most probable scenario at this time, is if the DAX holds on to this morning’s gap and puts in a strong daily close above all resistance (10828 is the highest point). With this outcome, the preferred plan of attack is to wait for a pullback before entering long, as the market has already made a substantial move since Monday. This could unfold as a retest of prior resistance and hold as support in the 10828/10750 vicinity, or a period of consolidation in breakout territory. Given the significance of breaking such a strong barrier and the general uptrend since February, a sizable move could unfold in the weeks ahead. The only minor level we can see is a top-side trend-line back to April in the area of 11130/50. Beyond there, nothing significant stands in the way until the November 2015 peak at 11431.

The less likely scenario, is if the DAX fails this morning’s 100+ point gap to close back below the prior peaks. This would demonstrate a rejection by the market to sustain new levels. In the event a reversal day takes shape our bias in the short-term turns negative. Resistance while broken on an intra-day basis, at least for now, will have been validated once again on a daily closing basis..

DAX: Daily

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Heads up: The ECB has a monetary policy meeting tomorrow, and while there are no expectations for any changes to be made, the policy statement and press conference with Mario Draghi could stir up volatility.

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---Written by Paul Robinson, Market Analyst

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