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DAX Trading Outlook: Bear-flag or Rally, Either Way Watch the Higher-lows

DAX Trading Outlook: Bear-flag or Rally, Either Way Watch the Higher-lows

Paul Robinson, Strategist

DAX Technical Highlights:

  • DAX continues to chop its way higher, looking corrective so far
  • The higher-lows in the price sequence are what matter for longs/shorts

For longer-term fundamental and technical analysis on the DAX & Euro, and our top trade ideas for 2018, check out the DailyFX Trading Guides page.

DAX continues to chop its way higher, looking corrective so far

The ‘rally’ off the low continues to smack more of a corrective bounce than it does the beginning of a broader move higher. However, corrections (bear-flag in this case) can last for periods of time longer than expected before continuing back in the direction of the trend. Or, eventually morph into a broader rally at some point as market confidence is restored. There are signposts to watch here as this plays out.

There have been a couple of dives lower (2/14 & 2/22) on an intra-day basis which were met with strong buying pressure. These reversal days are helping keep the upward trend intact and a series of higher lows in place. Given how powerful these bullish reversal days have been their lows are important.

At the current time, should the DAX take out the 2/22 low at 12283 it will be the first break of the bullish sequence, and a sign that the correction has ended. It should be noted that each new higher-low created along the way will become the new reference point. For example, if today the market were to rally back towards a new swing high from Monday, then today’s low would become the higher low to watch.

For ideas on how to build or restore confidence, check out Building Confidence in Trading

DAX Daily Chart

DAX daily chart with higher lows

The higher-lows in the price sequence are what matter for longs/shorts

Should the corrective price action continue, it’s possible it could morph into a broader trend higher, but momentum at some juncture will need to pick up for this to be the case. From a tactical standpoint, whether you are approaching the market from the long or short-side, watching those higher lows can be a good cue as to how to play the current upward move.

As long as the DAX keeps carving out higher lows and higher highs, then longs may find themselves with an opportunity to see how the DAX can handle a fairly large amount of resistance around 12745. For shorts, if the market is in a corrective phase, then patiently waiting for a break in the bullish sequence will provide a better edge as the path of least resistance starts tilting back lower.

In either case, the higher lows are important for both sides of the tape.

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---Written by Paul Robinson, Market Analyst

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