DAX Technical Highlights:

  • Bounce or beginning of a larger rally?
  • Resistance to watch ahead on further strength
  • Longer-term topping pattern developing?

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Bounce or beginning of a larger rally?

Not long ago the DAX looked headed for another major leg lower, with it already precariously positioned and U.S. markets on the verge of a breakdown. But the U.S. held, the DAX has since been surprisingly strong. Is it just a bounce or beginning of a rally?

Still leaning towards a bounce, with short-term levels in focus. There are several lines/bands of resistance not far ahead to keep an eye on beyond current struggles around the mid-March swing-high. A swing-high in Feb at 12601 is first up on another push higher, followed shortly thereafter by the 200-day at 12660, then lows developed during the Nov-Jan period.

It appears one of those areas will provide reason for the DAX to pull back, at the least. How price action plays out will be what matters. We’ll be waiting for a forceful rejection before we consider sharpening our bear claws. Initially, it may only turn out to be a pullback, but…

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DAX Daily Chart (Resistance levels to watch)

DAX daily chart with resistance levels

Longer-term topping pattern developing?

There is potential for quite the topping pattern to develop. This, of course, without it having fully matured is only a scenario, but a head-and-shoulders formation is beginning to come into view. The current period of chopping around/strength would, should it form, act as the right shoulder.

It’s too early to get too excited about its prospects, but certainly worth keeping on the backburner moving forward. Given its beginnings date back to June, the size of the pattern would imply a major decline is on the way. We’ll discuss this in further detail should it become relevant. For now, we’re focusing on levels close at hand. Don’t forget to keep an eye on the U.S. market too as a measure of general risk trends.

DAX Weekly Chart (Head-and-shoulders forming?)

DAX weekly chart with head-and-shoulders potential

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---Written by Paul Robinson, Market Analyst

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