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DAX Continuing to Coil, Breakdown Seen as Most Probable Outcome

DAX Continuing to Coil, Breakdown Seen as Most Probable Outcome

What’s inside:

  • DAX working towards apex of a triangle below critical resistance
  • Continuation-trade lower looks the likely scenario; key support levels outlined
  • A strong close into the mid-12300s required to negate bearish outlook

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The DAX continues to remain one of the weakest global indices, as pressure from a strong euro continues and global appetite for stocks is fairly neutral at the time-being. Last month, the DAX triggered a bearish ‘head-and-shoulders’ pattern, but it has yet to garner much downward momentum.

That could soon change with the development of a triangle coming further and further into view with each passing day. Today, we are seeing some weakness to the underside of the maturing pattern; there isn’t but perhaps a few days left until price reaches the apex of the formation. It could break at any time.

In the event of breakdown, the 200-day arrives just a few points above the 12k mark. It could give the market some support, but if the topping H&S formation and broken wedge are to exert their forces then it may prove to be a speedbump at best on the way lower.

Significant price support to watch comes in at 11935, 11850 (to a lesser degree), then 11484. The measured move target of the ‘head-and-shoulders’ formation arrives near 11600, but is a projected target – preference is towards actual levels of support/resistance.

The triangle could always trigger to the top-side and end the slide since June. It would be against the trend and given the strong resistance surrounding 12300, traders would want to be careful until we see a strong close above ~12340; then the bias could quickly go from negative to positive.

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.