Bottom line: DAX long term bearish structure remains intact until the indice stays below 13800 mark. A break below 10250 support would confirm that bears are back in control and rallies are good to be sold thereafter.
Fundamental Outlook:
DAX had gapped down on Monday, in line with most Global Indices, and closed over 3.5% lower at 10466. The indice is set to remain under pressure as COVID-19 induced recession looms, along with man-made trade war fears between the US and China as Trump talks of tariffs as a retaliation over COVID-19 pandemic. The historic “Sell In May and Go Away” sentiment again shadows most investor psychology.
Gold has seen some selling pressure and trades below $1700 mark as we write this article. As most economies open up after several weeks of shutdown, sentiment may have drifted towards more risky assets. This could be short lived though as the US Non-Farm Payrolls forecasting over 21 million jobs lost.
Oil prices surge as WTI Crude trades around $24.00/barrel and Brent above $28/barrel respectively. The production cut decision taken by the OPEC last month will be in effect from this month and this could be a positive for Oil prices. The yearly target could be as high as $65/barrel, the January 07, 2020 peak.
Technical Analysis:
DAX had rallied last week along with most indices to face stiff resistance around 11200 levels. The indice has reversed sharply from those levels and was trading around 10466 when markets closed yesterday. It is very close to breaking below 10250 support, which would be encouraging to bears.
DAX has produced a counter trend rally since 8250 levels, which has just exceeded the fibonacci 50% retracement of the entire drop between 13800 and 8250 earlier. It is ideal for a bearish reversal here and for the down trend to resume towards 8000 levels, going further.
Immediate resistance is seen at 12260 levels while fibonacci 0.618 retracement is around 11700 mark. If DAX manages to reach 11700 levels, high probability remains for a sharp bearish reversal.
Most traders might have initiated fresh short positions around 11200 mark and willing to add further around 11700 if reached. Protective stops remain above 12300 mark, while target potential remains below 8000 respectively.
Prepared by
Harsh Japee, Technical Analyst.
DAX Chart
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