DAX Challenging Key Level
- DAX pushes higher 9 out of 11 days, no pullback, could change now that at key resistance
- Market at risk of a correction here, but not expected to be a sharp decline
- Long and short considerations
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On Thursday, we said we would like to see a pullback develop in the DAX to alleviate short-term overbought conditions as well as improve risk/reward for fresh longs. From there we expected the market to move higher into the November 2015 peak. For starters, the market doesn’t care what ‘we would like to see’, and with that said momentum following the break above the barrier surrounding 10800 has been stronger than anticipated. Dips have been pretty much isolated to the intra-day time-frame. Through Friday, 9 of 11 trading sessions have been higher.
To conclude last week the DAX traded above the Nov ’15 peak at 11431 to a high of 11451 before reversing and settling lower to 11404. Now that we are at our targeted level of resistance, where do we go from here? Our initial thought is we may finally see the DAX trade lower, but it’s not expected that the decline will be anything more than a correction. A decline to the top-side trend-line dating back to April (~11140/210) is about as aggressive of a drop as we anticipate at this time. Upward momentum won't likely sustain itself as it has, but we look for the market to keep a bid through year-end.
As the market moves higher without any correction the harder it becomes to continue buying into the rise. Risk/reward diminishes with each push higher without a dip unfolding, and with a potential obstacle in the way (Nov ’15 peak) long positions are at even greater risk here. Aggressive traders with a very short-term outlook may want to look to shorts around the Nov resistance, but from a swing trade standpoint (days to longer) we see little edge at this juncture.
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---Written by Paul Robinson, Market Analyst
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