Overbought but Trading Above Long-term Hurdle

Overbought but Trading Above Long-term Hurdle


DAX 30 Technical Highlights

  • DAX closed last week above long-term levels
  • Extended near-term, due for a pullback

Fresh quarterly forecasts are out, to see where our team of analysts see the Euro, DAX, and other markets are headed in the coming weeks, check out the DailyFX Q2 Trading Forecasts.

DAX closed last week above long-term levels

Last week, the DAX closed above several long-term thresholds. This doesn’t necessarily put it into the clear to trade materially higher, but it certainly dents the bearish case for now. To recap, the long-term levels being tracked, are the neckline of the head-and-shoulders pattern dating back to 2017, the 2011 trend-line, 200-day MA, and March low from last year.

Despite closing above the levels on Wednesday, it looked as though a shorter-term ‘RST’ (Reverse Symmetrical Triangle) pattern may end up pushing the DAX lower by Friday to close below the aforementioned levels, leaving it with a weekly candlestick reversal. However, that was clearly not the case. This may open the way up for a broader rally to continue, but that may be put on pause until we see some retracement of the recent leg higher.

The market is rolling over just a bit from the upper parallel of a channel dating back to the December low. Stay below 12029 and lower prices are anticipated down towards 11800 and the gap-fill from April 3 at 11754, below there the 200-day under 11700, then the lower parallel closer to 11600.

Another little push higher from here above last week’s high will bring into play the trend-line off the Jan 2018 record high level. The thinking is that the market is either already undergoing a pullback or will very soon with both overbought conditions and resistance levels in the area.

Risk/reward is generally skewed negatively for longs at this point and growing more favorable for traders looking to play for a retracement. Following a pullback longs may become attractive if price action is constructive during the corrective process.

DAX Daily Chart (pullback looking likely soon)

DAX daily chart, pullback looking likely soon

DAX Weekly Chart (Closed above resistance)

DAX weekly chart, closed above resistance

Want to learn more about trading the DAX? Check out ‘How to Trade the DAX’, and join me weekly for technical updates in the Indices and Commodities webinar.

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX





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