DAX Tech Outlook: Stubbornly Holding On
- DAX holding on despite trading in French election gap
- Trading at neckline of bearish H&S topping formation
- Need a clean break of neckline or alternate scenario could come into view
As we were discussing yesterday in regards to the FTSE, global indices aren’t the easiest asset class to get a handle on with volatility at such low levels and market participation thinned out a bit due to summer. But unlike the FTSE, the DAX does present a clearer technical landscape.
The drop to end last week pushed the German index into the gap from the first-round of the French elections, and on Monday it looked like it might be a quick drop to fill the gap down to 12048. While gap-fills are a common occurrence, they don’t always happen in a big rush even when the market has already fallen into the void. Just ask anyone who has been short the CAC; the fill has been elusive and if it is to fill it will have taken a long detour along the way towards reaching its destination.
In addition to a gap-fill, we have an interesting confluence of events which could develop. The DAX is trading just above the neckline of a ‘head-and-shoulders’ top. It slipped ever so slightly below it on Monday, but it wasn’t a convincing break. A convincing break will not only likely lead to a full gap-fill but kick off a larger slide below 12000. (Remember: The neckline must break to validate the H&S topping scenario.) Levels to watch on a break lower include 11941, 11850, 11829 (200-day), and the measured move target, derived by subtracting the height of the pattern from the neckline, arrives around 11630.
If the neckline holds, an alternate pattern could come into view – a descending wedge. While this could still have bearish implications, in a bull market they often lead to bullish outcomes. Keep in mind, this is only an alternate scenario and would certainly take some time before becoming a viable possibility.
For now, we’ll see if we can’t get a clean break into the gap and trigger of the neckline. If we don’t soon see a break then a spring higher may develop and we can begin thinking about alternate paths.
Paul conducts webinars every week from Tuesday-Friday. See the Webinar Calendar for details, and the full line-up of all upcoming live events.
---Written by Paul Robinson, Market Analyst
You can receive Paul’s analysis directly via email by signing up here.
You can follow Paul on Twitter at @PaulRobinonFX.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.