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Jason Sen

DAX ready to resume the early-summer rally

We are nearing the end of a dry summer period for financial markets and traders will be hoping that the autumn is more volatile. Most of the currency pairs I review have been trading sideways for weeks if not months, gold and silver appear to be in a holding pattern and the US stock markets have been experiencing some of the lowest volatility on record.

However I think I might have dug out a small trading idea nugget in the DAX 30. I recently pointed out how we had seen a bullish breakout of a one-year descending trend.

In the weekly chart above you can see how the DAX broke higher in the early part of August. A nice big blue-bodied candle used the blue 100-week moving average line as support once the 16-month trendline resistance had been broken. I was full of optimism that this bullish breakout would signal a spike higher through to the end of the summer, but this was not to be the case. For the last three weeks, bulls have had to endure a sideways-trading market.

There are reasons, however, to remain bullish and expect finally to see the long-awaited push higher in the autumn months ahead. In the weekly chart traders have managed to use the blue 100-week moving average line (at 10430/10400) as support and prices have bounced aggressively off this level over the past two weeks. As we stabilise above that 16-month trendline the bulls remain in control.

The daily chart is very unclear to put it mildly and does not give any clear indications to me about future direction, although one can see a clear bullish trend since the low in February. It’s not an easy bull trend to ride, especially as we spent March, April, May and June going sideways. However, the fact remains that we’ve managed to stabilise above the July high of 10,472. In fact, it is significant that, since the breakout in the second week of August, we have not seen a daily close below 10,472.

Two other points to note are:

  1. The index futures have held above the 61.8% support at 10,386. This in fact is the exact low for the last three weeks. Support levels are then tying in nicely on the daily chart.
  2. The 100-day moving average has in fact crossed over the 200-day moving average. I would consider this a very weak signal because, really, both moving averages are trending more sideways than they are upwards, but it’s still worth a mention.

For my final bullish argument we can look at the four-hour chart for a very short-term view.

As you can see, we have held the 100-period moving average nicely and are breaking out of the triangle pattern. The next challenge is to beat last week’s high at 10,657 to target 10,700/10,720 before the August high at 10,804. Obviously a break above here would be further bullish confirmation.

Jason Sen
Technical Analyst & Trader

For more information, trading education and offers visit InterTrader

The content of this article is the personal opinion of the author and not InterTrader. The information and comments provided herein under no circumstances are to be considered an offer or solicitation to invest. Nothing herein should be construed as investment advice. The information provided is believed to be accurate at the date the information is produced.

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