DAX – The week ahead

After a week of central bankers making speeches, a German vote securing Greece’s bailout programme being extended by four months, options expiry and end of month – the markets have moved higher towards the close of the week.  

Looking below at the 5 min chart, the DAX was range bound for most of Friday’s trading session between 11300 and 11350.  The price finally broke through resistance but with a whimper.  The price failed to close and move above the key 11400 level.  The average trading range for the last 22 days is 163, yet only 97 was recorded for friday’s session.  The DAX had more than enough to blast through 11400 to at least the R2 pivot of 11429.

Have the Bears finally started their attack on what has been an incredible 11.3% rise in the Index since the ECB agreed to a €1.1 Trillion Quantitative Easing program back in late January?  Has the DAX finally run out of steam?  Will the 11400 hold resistance and the Bears launch a new assault coming into March?  Looking at the Hourly chart below, it’s easy to see the divergence that has formed between the RSI & MACD vs the price action.  The price is over extended from it’s 100 hour ma (blue line in the chart below) at 11230, it’s 200 hour ma (green line in the chart below) at 11106 and the trendline which has been in place since early February which comes in at 11050.

My view is if the 11400 holds and the Bears continue their downward momentum look for targets of 11230, 11090-11070, 11015, and below that the 38.2% retracement of the move higher from the ECB QE announcement on the 22nd January at 10950 which is also the 100 H4 ma.  This level has already proven to be strong support in the last few weeks.  If this level breaks then price should push lower to 10673, the 61.8% and 200 H4 ma where the Bulls will come in droves to ‘buy the dip.’

However, I’m not so sure that price will move that low in the coming week.  It may slacken off a little, consolidate giving a breather to Bulls before resuming higher as there is a small bit of momentum left to go.  When looking at the Daily chart, one can see that the MACD is still in positive territory and the RSI is only beginning to approach overbought at the 70 level.  If Price does manage to break through 11400 in this weeks trading, I would recommend taking some profit off the table at the Daily R2 pivot level of 11429, 11500, the Daily R3 pivot at 11524, 11600 and if that level breaks, which I would be surprised to see, then the Weekly R3 pivot at 11670 should be a very firm ceiling for the months ahead.  The price is a long way from it’s 100 moving average and will need to test it at some point. Just expect any sell off in the coming days to have limited downside potential.