An incredible trading day for the DAX yesterday – moving a whopping 354 pips! The last time this occurred was back on the 26th January, just days after the ECB QE announcement. Capital inflows were moving into the German stock market hand over fist. This is down to the fact investors are foreseeing similar level increases in the German Index as the S&P 500 experienced in the past few years, after the US Federal Reserve’s money printing stimulus program was created.
Where to from here?
Looking back to the 27th January, the day after gargantuan volumes were seen, the market retraced almost 70%. A potential selloff in the region of 250 pips is not off the table in trading today. So be prepared. Does that mean then, THIS is the start of a HUGE selloff?? Unquesionably, the DAX is overextended when looking at the Daily chart and looks due for a correction when looking at the Monthly chart (see charts on earlier post here http://theshielreport.com/2015/03/09/dax-the-week-ahead-9th-march/ ). However – for me to become bearish on this Index in the medium term I would first need to see confirmation in two stages.
Stage One – would be a break of the Hourly 200 moving average (green line in the chart below). This seems to be a line in the sand for the bulls, finding strong buying activity at this level. It is easy to define risk against this level as the DAX has rebounded six times off the 200 MA this month, failing to close below and surge back higher.
(click to enlarge)
Stage Two – This would be a break through the lower trendline channel on the 4 Hourly chart. Looking at the chart below, one can see this channel has been in place since the ECB QE announcement at the end of January.
(click to enlarge)
CONCLUSION – BULLISH AND BEARISH
The DAX sold off in early trading today after creating a double top at yesterdays high during the Asian session. For traders who are able to stick to their trading plan, manage capital and define risk – today could present some ripe shorting opportunities on the provision tight stops are used at key resistance levels.
For bears, one area of note for example is the 100 & 200 MA’s on the 5 minute timeframe. Looking at the chart below, note how price moved through its 100 & 200 moving average (blue & green line), retraced and sold off once more against the 100 MA. An easy to define area for bears to lean against. If the selling momentum continues through the US session at 14:30 GMT, intraday targets for bears will be the 38.2% – 61.8% (yellow box) of yesterdays move up 11511-11855.
Conversely, these levels also represent buying opportunities for bulls. If price breaks through this zone, expect to see massive buying at the major support level of 11600.
(click to enlarge)
Bearish targets :-
- 11724 (38.2% retracement of move higher yesterday)
- 11683 (50% retracement of move higher yesterday)
- 11600 (Key zone of resistance over the last week )
Bullish targets :-
- 11900 (key psychological area and close to extension of daily range ay 11909)
- 11952 (Daily R1 Pivot)
- 12077 (Daily R2 Pivot)