DAX – Shape-shifting, but Outlook Remains Bearish

What’s inside:

• DAX continues to chop around since breaking down from H&S top
• A little more time will bring a mature triangle pattern into view
• As long as price stays below the low-12300s the outlook remains neutral to bearish

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For over a month the DAX has done, well, nothing really. The index is trading right around the same levels it was towards the end of last month when it officially broke the neckline of the ‘head-and-shoulders’ top. It took some time but the glaring gap from the first round of the French elections was finally filled, and it was not far below the gap-fill in which the April low provided the market with support.

The area surrounding 12300 has been formidable during the course of the past few weeks, an area which we maintain as an important line-in-the-sand. As long as the DAX stays below then the sideways to downward bias remains intact. Today, we are seeing the market struggle around the trend-line off the June high. Overall, the price action for much of August is beginning to take the shape of a triangle. It won’t be long before it’ll tighten up towards completion.

Given we are still operating within the context of a broken H&S formation and general downtrend it appears likely we would see an eventual break lower with just a little more time for the pattern to mature. If full maturity is to be seen and lower prices as a result then we won’t see a push beyond the low-12300s, and likely not even much of an attempt from here to trade beyond this formidable threshold. If, however, the market does push beyond resistance (especially after a developed triangle) then of course the outlook will be altered and we’ll be certain to take note.

DAX: Daily

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---Written by Paul Robinson, Market Analyst

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