Short-term recovery for the DAX 30?
US stock markets are apparently unstoppable with the E-mini S&P 500 reaching a new all-time high last month at 2917. In the monthly chart below we see an enormous rally which only paused at the start of this year. We then saw a minor 10% correction before a steady recovery through the spring and summer.
European stock markets however tell a different story. If we take the DAX 30 futures, for example, we can see that, although it also started its bull run in early 2009, and topped out – just like the US markets – in January of this year, it has since been moving mostly in a more sideways direction.
If we zoom in on the weekly chart below we can see that sideways trend has carved out a potential head-and-shoulders pattern. The triangles highlight the potential right and left shoulders. Note the negative double-top pattern at the head in the middle.
We do not have a completion of the head-and-shoulders pattern without a break below the neckline. Only then is the pattern complete and the sell signal generated. Plenty of these patterns fail so it is never a good idea to sell before completion and hope for a break lower.
The neckline is the descending thick green trendline which is dipping towards the ascending red 200-week moving average. They are about to intersect at 11450/500 so this will obviously be crucial support if tested in the autumn.
Short-term targets for the DAX
More important in the immediate future is the two-and-a-half-year trendline being tested at 12000/11950. While the market has dipped just below to 11859 this week, we are now stablising above 12000, as you can see in the daily chart below.
In oversold conditions a recovery could well be on the cards. Perhaps last week’s spike down to 100 ticks below the trendline was enough to shake out the weak long positions, opening the door to a recovery into the end of September.
If we zoom in to view the last few candles on the daily chart, we are starting to see long lower shadows. This indicates more aggressive buyers at the lower levels of the week.
Yesterday in fact we used the trendline as a platform to launch a recovery in severely oversold conditions. If we continue higher today we can challenge the first resistance at 12100/12110. A break higher is obviously encouraging to bulls and allows them to target 12150 then the second resistance at 12250/12270. We are likely to at least pause here and probably will need to turn a little lower in order to take a long run up to this hurdle.
Once we are through 12300 we can look for 12360/12370 and the September high where we traded only last week at 12400.
Technical Analyst & Trader
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