DAX Technical Highlights:
- Rally has the DAX at a pivotal spot
- A turn down won’t cement a big-picture top, but increase potential
- Consolidation or shallow pullback may bring old highs back into focus
Rally has the DAX at a pivotal spot
The rip in the DAX, with the help of a weakening euro, has the index pressing up against a very important area for not only the near-term, but potentially the intermediate-term as well. In the middle of April we discussed the potential for a broad head-and-shoulders top to form, but the market will need to turn lower soon to keep the pattern in play.
There is a thicket of resistance in the vicinity, it’s a rough zone, but nevertheless there is a good deal of price action from the mid-12800s up to the mid-12900s dating back to June, where the potential left shoulder of the H&S pattern exists.
In the short-term, a turn down looks probable on this first attempt to breach the top of the zone. How any pullback materializes holds potential to be important for the longer-term. Should a pullback ensue with force then likelihood rises for the market to wilt again and the development of a right shoulder.
Given it would take a fully developed right shoulder and decline below the neckline to kick off this sizable pattern, there is good reason to pay attention to how things play out the next several sessions. If we don’t soon see a strong turn lower, a consolidation or shallow pullback may mean the DAX is readying itself to clear through notable resistance and make a run on the old highs.
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DAX Daily Chart (At point of interest)
DAX Weekly Chart (H&S top still on the table)
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---Written by Paul Robinson, Market Analyst
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