What’s inside:
- DAX holding on despite trading in French election gap
- Trading at neckline of bearish HS topping formation
- Need a clean break of neckline or alternate scenario could come into view
What will drive the DAX and the Euro for the remainder of Q3? Find out here!
As we were discussing yesterday in regards to the FTSE, global indices aren’t the easiest asset class to get a handle on with volatility at such low levels and market participation thinned out a bit due to summer. But unlike the FTSE, the DAX does present a clearer technical landscape.
The drop to end last week pushed the German index into the gap from the first-round of the French elections, and on Monday it looked like it might be a quick drop to fill the gap down to 12048. While gap-fills are a common occurrence, they don’t always happen in a big rush even when the market has already fallen into the void. Just ask anyone who has been short the CAC; the fill has been elusive and if it is to fill it will have taken a long detour along the way towards reaching its destination.
In addition to a gap-fill, we have an interesting confluence of events which could develop. The DAX is trading just above the neckline of a ‘head-and-shoulders’ top. It slipped ever so slightly below it on Monday, but it wasn’t a convincing break. A convincing break will not only likely lead to a full gap-fill but kick off a larger slide below 12000. (Remember: The neckline must break to validate the HS topping scenario.) Levels to watch on a break lower include 11941, 11850, 11829 (200-day), and the measured move target, derived by subtracting the height of the pattern from the neckline, arrives around 11630.
If the neckline holds, an alternate pattern could come into view – a descending wedge. While this could still have bearish implications, in a bull market they often lead to bullish outcomes. Keep in mind, this is only an alternate scenario and would certainly take some time before becoming a viable possibility.
For now, we’ll see if we can’t get a clean break into the gap and trigger of the neckline. If we don’t soon see a break then a spring higher may develop and we can begin thinking about alternate paths.
DAX: Daily
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—Written by Paul Robinson, Market Analyst
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