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Article / 10 August 2016 at 13:24 GMT

Dax breaks free from bear trend

Technical Analyst / Saxo Bank
  • Escapes both long- and medium-term bear trend
  • A Friday close above falling trendline would allow more gains
  • We may see some weakness before push towards 10,825

By Kim Cramer Larsson

Germany's Dax index has broken its longer-term and medium-term falling trend this week. If we can have a close by Friday above the falling trendline there is room for further gains. 

Resistance ais seen around the 0.618 Fibonacci retracement of the wide bearish channel just below 11,000 and at the 0.764 retracement at around 11,520. The latter is also the Q4 2015 peak. 
If the Dax closes around current levels or higher RSI will be back above the 60 bullish threshold for the first time since Q2 2015! That would likely make Dax test the Q4 2015 peak at around 10,430 within the next 4-6 weeks.

dax weekly
Source: Saxo Bank  

Shorter term 

Dax is trading in a very steep bullish channel. There's no divergence on RSI and MACD, indicating we could see higher levels within the next 5-8 trading days.

There is some resistance at around the 0.764 retracement of the Q1 2016 selloff and as mentioned above just below the 11,000 level. Around that level Dax is also likely to test the upper rising trendline in the longer term apparent bullish chaneel (blue lines).

With red and green lines I have drawn a possible scenario in the next chart.   
To reverse this scenario the Dax must close below 10,000. As can be seen there is support just above here at the 200-day moving average.

DAX daily
Source: Saxo Bank  

Very short term – intraday

The first 5-8 days of August Dax formed a Cup and Handle pattern. It has reached its minimum price target and then some, testing the 1.618 projection for the cup. As there is no divergence on RSI and MACD we could see a push towards the 2.0 projection of the cup, ie at around 10,825. Expect some short-term weakness before the last push.
A close below the low of the Handle at 10,400 can initiate a "bigger" correction down towards 10,200-10,250 maybe even 10,100. 
DAX 60 mins
Source: Saxo Bank  

— Edited by Clare MacCarthy
Kim Cramer-Larsson is a technical analyst at Saxo Bank
11 August
Luckson Luckson
Hi, a litle while ago, i asked you a question and you replied, regarding your charts, i have saxo charts now, so thank you for that.
May i ask a question, i am learning to trade, and have been doing alot of reading on candles, trading with candles only. Would you recommend this?? Also Dark cloud is a strong reversal signal, but they all say with confirmation, what is that confirmation??? i am reading different points, confusing me. If you have any notes, articles on candle stick trading????

Thank you in advance.
18 August
Kim Cramer Larsson Kim Cramer Larsson
Hi Luckson
There is a ton of books out there but I would start with Martin Pring. If you really want to dig into chart patterns check out Thomas Bukowski. Regarding candlestick patterns: Steve Nison .
Confirmation is when you see a pattern, break out or possible trend on the price chart it should be confirmed by indicators such as volume, RSI, MACD or others


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