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DAX Dripping Lower, Bearish Outlook Remains Intact

DAX Dripping Lower, Bearish Outlook Remains Intact

What’s inside:

  • DAX below neckline of ‘head-and-shoulders’ topping formation
  • On its way to filling gap from first round of the French elections
  • Key levels to watch including measured move target for H&S pattern

Find out in our Q3 Forecast what’s driving the DAX and Euro this quarter.

The last time we were discussing the DAX it was stubbornly hanging onto support around the neckline of the ‘head-and-shoulders’ (H&S) top we’ve been focused on. On Friday, it appeared we were finally headed for a clean break of the neckline and fill of the April gap (French elections). The break wasn’t the most convincing by the close of the session, but nevertheless the market is in the gap and trading below the neckline.

With the H&S top having officially triggered we should continue to see weakness develop. This type of formation, as is the case with any technical pattern, has a measured move target (MMT) which is derived by its size (height subtracted from the neckline, in this case). That points to approximately 11630. But that is a symmetry-derived target and doesn’t take into account actual price points. With that said, there is support along the way which we’ll want to keep an eye on. The first up is the gap-fill not far below at 12048, then the swing-low in April at 11941, followed by a swing-low in March at 11850. The March swing-low is fairly minor in terms of its relevance, but the fact the 200-day MA clocks in right around the same point makes ~11850 a big support level. Then comes the measured move target at approximately 11630.

What will turn a bearish view around? The DAX has its work cut out for it before we begin seeing a bullish price sequence develop. For now, we’ll stick with a short bias until we see price action suggest we should do otherwise, and update as things progress. Stay tuned...

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DAX: Daily

---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.