Bottom line:  DAX bearish structure remains intact below 13800 levels but bulls might be preparing for a counter trend rally towards the 13000 mark before resuming lower again.

Technical Analysis:

DAX is in control of bears since 13800 levels and the drop has come in very sharp in line with expectations. The drop between 13800 and 11624, over 2000 points could be termed as Wave 1 within an impulse or Wave A within an A-B-C drop lower. It cannot be confirmed with certainty but probabilities remain for a 3 wave corrective rally towards 13000 levels. Please note that Fibonacci 0.618 retracement is seen close to 13000 levels and a bearish reaction there should not come as a surprise. Those aggressive traders who had initiated short positions earlier, might want to book profits around current levels or price action. Aggressive traders might be willing to initiate long positions with protective stop below 11600 and projected target around 13000 levels respectively. Looking at the overall wave structure, DAX had earlier produced an A-B-C drop between 13596 and 10279 levels. This was followed by another potential A-B-C rally between 10279 and 13800 respectively. If the indice remains poised to produce an expanded flat, prices would unfold into 5 waves lower from here and push below 10279 mark, going forward. While if a combination is underway, DAX would drop in an A-B-C pretty close to 10279. In either case, it is expected to continue dropping lower towards sub 10200 levels going forward. With the first leg potentially over around 11624 levels, we could expect a pullback towards sub 13000 levels before the drop continues further. Watch out for a bullish reaction around current levels that could drag prices higher in a corrective way. Immediate support is seen at 11200 levels and DAX could be well supported there.

Prepared by

Harsh Japee, Technical Analyst.

DAX Chart

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