DAX Extends into Top-Side Trend-lines, Reversal Underway

What’s inside:

• DAX high-level consolidation pattern broke to the top-side, but failing as anticipated
• Reversal taking shape from long-term top-side trend-lines (2000-present, 2015-2017)
• A break below 12909 puts the index at risk of a drop back below 12700 in the near-term

Find out what’s driving the DAX in our Q4 Forecast.

On Tuesday, we were discussing the DAX and the high-level consolidation pattern under construction, making note that between the extended nature of the market and narrowness of the range a breakout was at risk of a failure. To add further to this notion is the fact that running just across the top of the consolidation is a pair of top-side trend-lines (2000-present, 2015-2017).

Yesterday, the DAX traded higher but found sellers and reversed. It wasn’t a ‘nasty’ reversal-day but the intra-day range of about 90 handles was the largest since the last trading day of September. It’s been a difficult little stretch indeed, with minimal volatility. That could be about to change.

The mini surge higher and reversal out of the high-level consolidation formation is the kind of price action we were looking for as a sign-post a pullback may be in store. A drop below the consolidation low at 12909 will undermine not only the congestion pattern but also put the index back below the record high recorded in June. In this case it is reasonable to expect at the least we see a move towards the swing-high from July beneath 12700. Even if the DAX is to trade to new heights the market is in need of a pullback.

Next week, the ECB meets on Thursday and we’ll learn more about the path Draghi and company want to take with regard to its QE program. For details on timing, expectations please see the economic calendar.

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DAX: Daily

---Written by Paul Robinson, Market Analyst

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