DAX: Looking for a Dip After the Rip, More Upside to Follow
- The DAX follows through on Wednesday’s breakout
- Fresh longs look a bit risky here, waiting on a pullback/consolidation period
- Room to go to resistance, end of year forces should keep equity markets moving higher
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On Wednesday, this is what we had to say about the DAX as it was in the process of breaking out, “The preferred plan of attack is to wait for a pullback before entering long”. While this isn’t a ‘wrong’ way to handle breakouts, it is a conservative one. We certainly underestimated the momentum that would be generated upon the inital thrust.
Yesterday, the DAX traded above our first level of minor resistance by way of the top-side trend-line running over the April and August highs. At this point, initiating fresh longs doesn’t hold the best risk/reward profile. With that said, new entries on a pullback or following a period of consolidation is a prudent approach for those playing for further upside. As things progress we’ll update with short-term charts which may identify more specific spots with good risk/reward for entering new positions.
For those who bought the breakout or are holding positions from prior to the breakout may want to consider using a trailing stop. One type of trailing stop favored on this end, is to use the low of the last bullish bar, and should the market close below the low of that day then the position would be liquidated, or at least partially so. There are numerous ways to handle trailing stops, and using one to protect a good run in profits is sound risk management. Shorts at this time are off the table all together.
The next significant level of resistance, and our target after a recoil is the peak (11431) created on the last day of trading in November 2015. It would require a serious reversal in momentum to turn our bias negative. Global markets are rallying in concert and end of the year forces favor seeing equity markets higher.
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---Written by Paul Robinson, Market Analyst
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