Bottom line:  DAX might have carved an interim low around the 8255 levels yesterday. Bulls might be preparing for a counter trend rally towards 9800 levels at least.

Technical Analysis:

DAX has produced extreme volatility yesterday after dropping considerably below the 8700 levels yesterday. Please note that we had discussed and expected DAX to drop towards 8700 levels last Friday, to terminate Wave 3 before producing a counter trend rally. Bears have managed to drop towards 8255, way below 8700 levels yesterday, before pulling back sharply. Looking at the recent wave counts, DAX has produced Waves 1, 2 and 3 since 13800 highs. Wave 1 terminated at 11600 levels followed by a shallow Wave 2 termination around 12207. Wave 3 projections were around 8700 levels but DAX has terminated much lower at 8255 levels. It is seen to be trading around 8750 levels at this time in writing and is expected to rally towards 9800 at least to terminate Wave 4. Please note that since wave 2 was an expanded flat, Wave 4 could be sharp rally towards 9800 before reversing lower to produce Wave 5 lower again. Also note that we are projecting Wave 4 to terminate around the fibonacci 0.382 retracement of Wave 3, which is ideally the case. If the above wave counts hold, a counter trend rally towards 9800 levels is expected to begin soon. Most traders might be willing to take some profits on the short positions taken earlier and remain flat. After Wave 4 is complete, DAX is expected to reverse lower to produce Wave 5 below 8200 levels. Ideally prices should remain below the 11600 mark, for the above scenario to hold. Watch out for a potential counter trend rally to materialize soon and reach 9800 levels at least.

Prepared by

Harsh Japee, Technical Analyst.

DAX Chart

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