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DAX 30 & CAC 40 Technical Outlook: Elevated Risk of a Setback

DAX 30 & CAC 40 Technical Outlook: Elevated Risk of a Setback

Paul Robinson, Strategist

DAX/CAC Technical Highlights:

  • DAX is making its way higher, but the grinding wedge behavior is concerning
  • CAC has been extremely impressive, but a dip could be around the bend

The DAX continues to grind its way into record territory, but recent price action is concerning for longs. A rising wedge has been forming over the past month, and with these types of patterns the convergence of price often leads to strong one-way moves.

When a rising wedge forms during an advance the result is often a top of sorts as a complacent market gets caught wrong-footed. Should we see a downside break occur, the first line of support arrives about 300 points lower via a slope rising up from January. To confirm the breaking of the lower trend-line of the pattern, I’ll be looking for a short-term lower-low to develop beneath 15505

Should we see strong downside momentum when slope support arrives (and a breaking), then a larger correction may be under way, with the March 2020 trend-line and the May low at 14816 potentially coming into focus.

Before getting too bearish, though, we need to see the above confirmation first – otherwise it is still a bullish trend and the pattern could lead to a rally. In the event we see a squeeze higher, there isn’t any resistance to speak given price is record territory. It’s possible we see a head-fake higher before taking out the underside line of the pattern, but we’ll worry about that should it look to be coming to fruition.

For now, in wait-and-see mode until further cues.

DAX Daily Chart

dax daily chart

DAX Chart by TradingView

The CAC 40 has been on some kind of run, with it seemingly up nearly every day. The one-way price action and extended nature of the index leaves no real appeal for fresh longs. Shorts look even less appealing.

A tricky spot indeed for traders, unless long from lower levels – in which case managing a position with a trailing stop appears the prudent approach. The record high from all the way back in 2000 lies about another 300 points higher at 6944.

Keep an eye on the DAX wedge and it plays out, it could be a good tell as to whether the CAC can continue its run or not.

CAC Daily Chart

cac daily chart

CAC 40 Chart by TradingView

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---Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.