German DAX: has tested major support but what now?

October 20, 2014

I wrote my first article about the German DAX stock index back on the 21st Aug. As with the S&P500 and DJIA I have calculated a potential bullish target for the DAX but I’m now pondering the chance of a deeper pull back before this bullish target might be attempted.

DAX monthly: I am still seeing a potential bullish target up near 13,000. The index has pulled back to test the key 8,300 region which was the previous high from 2000 and 2007:

DAX monthly

DAX weekly: the weekly chart shows this test of the key 8,300 region more clearly. It also shows how a daily support trend line has been respected:

DAX weekly

DAX weekly Ichimoku: the Ichimoku Cloud shows how the DAX has bounced up off the bottom of the weekly Cloud and, in doing so, has formed a bullish-reversal ‘Hammer’ candle:

DAX weeklyIchi

All of these signals so far are most encouraging of bullish continuation from this point on BUT………

DAX weekly MT4 chart: the weekly view of the DAX on my MT4 chart is slightly different and the pattern that stood out immediately for me was that of a bearish ‘Head and Shoulder’ pattern. Note the ‘neck line’ of this pattern is sloping the correct way for further bearish correction here:

DAXweeklyMT4

DAX daily MT4: price recovered on Friday to close back above support. I see the big question now as….for how long?

DAXdailyMT4

DAX 4hr Ichimoku: the 4hr Cloud chart shows that the DAX has a bit of work to do to get back up over the resistance of this 4hr Cloud. 

DAX4hrIchi

I just want to take you back the monthly chart again. The monthly chart shows how price has already tested major support and could well continue to bounce up from here. Note, though, how the Elliott Wave indicator is suggesting a deeper pull back here and how this would coincide with a test of the monthly support tend line:

DAX monthly:

DAX monthlyI wrote an article over the w/e where I noted how any deeper pull back on the S&P500 would only serve to better underpin the next eventual bull run. I am thinking along the same line here. I would be looking for an even deeper pull back on the DAX, perhaps to the monthly support trend line, to underpin its next bull run.

Summary: I do see longer-term bullish potential for the DAX but there are conflicting technical signals that traders need to be aware of in the shorter term:

Bullish:

  • bullish-reversal ‘Hammer’ weekly candle.
  • daily trend line still supporting price.
  • major horizontal 8,300 support tested and has held.
  • bottom of weekly Cloud supporting price.

 Bearish:

  • bearish ‘H&S’ on the weekly chart.
  • Elliott Wave Indicator suggesting a pull back to the monthly support trend line.