The DAX started to recover some of it’s losses from yesterday as news released this morning showed the unemployment number in Germany fell by 8,000. German unemployment fell in April to the lowest level in 24 years as the recovery in Europe’s biggest economy continues to pick up speed. Some analysts were expecting a drop of 10,000, but still a 6.4% Unemployment rate is a promising sign for Europe’s strongest economy.
Whether or not this will continue to push the DAX higher in today’s session is the question. Yesterday, Germany’s largest stock index suffered a gargantuan decline in price, travelling an incredible 526 pips. This was the biggest daily range year to date, and the biggest one day drop since March 2014. To put that into perspective, the DAX rallied 317 pips back in late January when the European Central Bank announced it’s QE program.
It was all a result of weaker-than-expected corporate results, a euro rebound and disappointing U.S. growth data. U.S. GDP figures for Q1 2015 released yesterday showed 0.2% growth versus expectations of 1% and way below growth seen in the previous quarter of 2.2%. The Euro rallied to an eight-week high and it’s strength has a direct effect on the ability of German exporters which in turn hampers any advances in the DAX.
After days like yesterday, it’s always good to reassess where the long term trend is, by looking at charts on the higher timeframe. Looking at the Daily chart of the DAX below, one can see the overall trend is still up. I have drawn a Fibonacci retracement from the announcement of QE from the ECB to the high almost three weeks ago. As you will notice, the market today has so far hit a low of 11327 just a few pips away from the 50% mark of 11316. The 50% level is always a key level on higher timeframes after big moves. Now I am not saying the market will not breach this level, but, it will be a very key level to watch. Below that level, strong support for bulls will be at the 100 day moving average (blue line), currently at 11010.
(click to enlarge)
Next below, we have an Hourly chart of the DAX. The yellow areas marked on the chart are key zones that price has either found resistance or support at since the ECB QE announcement at the end of January. As mentioned in my article yesterday, if price holds below 11750 the next major area to attack will be the 11606/11595 zone. You will notice, after price started to move away from the 11750 zone, price did indeed bounce at the 11606/11595 zone. However, shorting momentum pushed the index further down and after piercing the next key zone, 11457/11467 price moved back up and has since gravitated towards this area.
(click to enlarge)
CONCLUSION – NEUTRAL
The long term trend is up, the recent trend is down. Look at the yellow zones in the chart above, then mark these areas on your own charts, as they will help you define the market bias over the weeks ahead – bullish above – bearish below. Ultimately they will help you to define & limit your risk.
For bulls, if price can hold against the 11457 zone in trading today then the next target will be back upto the 11595/11606 zone.
For bears, if price cracks the key 11316 level (as mentioned above), the next key zone to target will be 11193/11174.
The 5 minute chart can also be helpful for clues towards a bearish or bullish bias in trading today. When price collapses like it did yesterday, it takes a while for the 100 & 200 moving averages (blue & green lines in chart below) to catch up. The next step is for price to come up and test these levels, find resistance and move back to the downside. However, in today’s session price has tested these levels on several encounters and failed to move to the downside with any force. Hence my neutral stance.
(click to enlarge)
Bearish targets :-
- 11328 (Daily low & close to key 11316 level mentioned above)
- 11266 (Extension of Daily range – 22 day avg. 226 & close to Daily S1 Pivot of 11261)
- 11193 (Top end of key zone)
Bullish targets :-
- 11494 (Daily high)
- 11556 (Extension of Daily range)
- 11570 (Daily Pivot)