Bottom line: DAX bearish structure is expected to hold until prices stay below 13800 mark. Bears have managed to test support at 12982 for now. A pull back rally can be expected before the drop continues.
Technical Analysis:
DAX had reversed sharply as discussed and expected over the last week from 13800 through 12982 levels respectively. Bears have remained shy by just a few points from breaking support at 12973 for now. The drop might continue further but a pullback rally is expected before turning lower again. The recent drop could be seen as the first leg of a major reversal ahead or a triangle termination before the thrust rally ahead. In either case, a counter trend rally is expected towards the 13500 region before deciding the next move. Traders who went aggressively short last week might be looking to book profits around current price action (13000/50) levels. Furthermore, aggressive traders might be willing to take long positions now, with protective stops below 12973 and potential target towards 13480/500 respectively. If the current drop is Wave 1 of a bearish reversal ahead, Wave 2 is expected to terminate around 13500 levels, before Wave 3 resumes lower again. We would review the situation again around the Fibonacci 0.618 retracement at 13480/500 levels. Looking at the larger wave counts, DAX had produced a 3 wave drop between 13596 and 10279 levels earlier. This was followed by yet another 3 waves rally towards 13800 levels. The entire structure could be a part of an expanded flat or a combination, at one larger degree. In case of an expanded flat, we could witness a 5 wave drop towards 10200 levels at least. Either ways, top side remains limited and ideally DAX should stay below 13800 levels going forward. Watch out for a pullback rally to materialize soon.
Prepared by
Harsh Japee, Technical Analyst.
DAX Chart
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