DAX Technical Outlook: Pullback Then Higher
- Fed raises rates, U.S. equities dip, no spillover into global markets today
- The DAX has only had one pause in the rally, waiting on a pullback/consolidation
- Continue looking to the November 2015 peak over 11400 as target
The Fed raised rates 25 bps yesterday, in line with expectations, but had a somewhat hawkish outlook with three rate hikes expected in 2017. This sparked a decent amount of volatility in U.S. equities, with the S&P 500 eventually settling lower on the day by over 80 bps.
Late day weakness in the U.S. isn’t spilling over to global markets in today’s trade. The Nikkei closed out relatively flat, the FTSE is off only fractionally so far, and the CAC and DAX are both higher on the session at this time.
Since rocketing off the 12/2 low and breaking out above a four-month long barrier surrounding 10800, the DAX has yet to provide a decent pullback to enter new longs on. Only a brief pause and test on Monday of the top-side trend-line running back to the April peak.
As previously noted, when looking to the left on the chart there isn’t anything substantial standing in the way of the market reaching the next point of resistance at the November 2015 peak (11431). We’re not far, but risk/reward is not favorable here. Not in in our book. The run has been huge for such a short period of time. Risk of a pullback continues to climb despite no visible resistance in the way. A short period of consolidation or shallow pullback will do the DAX some good.
On weakness we will first look to the April trend-line, a hold of this line could put the market in good position to reach the Nov ’15 highs. Risk/reward will look better, too. Just below the trend-line we will then look to the lows from Friday/Monday, both clocking in at approximately ~11140. At this juncture, it would require a sharp decline or key reversal day to damage our pullback then higher outlook. If we see no type of retracement from here and it is bulls on parade right up to noted resistance, we will watch how the market reacts and go from there.
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---Written by Paul Robinson, Market Analyst
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