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DAX – Failed Breakout Dents Bullish Tone, but Still Supported for Now

DAX – Failed Breakout Dents Bullish Tone, but Still Supported for Now

What’s inside:

  • DAX fails to maintain breakout from wedge
  • Trying to hang onto the bottom-side of the pattern
  • Important it does so, or else market could be in for a sell-off

What’s driving European equity markets? Find out in our trading guides.

On Tuesday, we were discussing the confirmed breakout the DAX made from an ascending wedge formation. This is what we had to say about the breakout, As long as the DAX doesn’t sink back inside of the wedge (close near 12800) and negate the breakout, higher prices are expected.”

So much for the confirmed breakout maintaining, as it was the same day of that writing that the ‘gap-n-trap’ (gap which draws in longs, only to reverse) put the market back inside the ascending wedge and closed near 12800.

The German index is presently trading around the bottom-side trend-line of the wedge formation. What can happen in these situations when a wedge pattern breakout in the direction of the trend develops, but then quickly fails and breaks through the other side, the resulting move can be aggressive. Market participants are caught leaning the wrong way. We’ve yet to see a break through the other side, but the DAX is treading dangerously close. It needs to hold here if it is to maintain. On a break, the December trend-line could help keep the market buoyed, but if a bottom-side wedge-break and trend-line support goes, then we could be in for an aggressive move lower.

On a hold of support, the market will maintain a semi-bullish posture, but the short to intermediate-term trend has become anything but clean. Risk/reward is in favor of would-be longs with a tight stop right here at this particular juncture. But cleanly break down out of the wedge and the bias quickly becomes skewed lower.

DAX: Daily

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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.