Bottom line:  DAX bearish structure remains intact below 13800 in the long term. The indice might be into its last leg lower before a pullback sets underway.

Technical Analysis:

DAX remains under control of bears since 13800 highs and might be producing a triangle at the moment. Looking into the sharp drop and wave counts again, the indice has produced Waves 1, 2 and potential 3 at 11624, 12207 and 8255 levels respectively. Since then, DAX is looking sideways as expected and it might be carving a Wave 4 as a triangle. As the guideline of alternation suggests, Waves 2 and 4 alternates between sharp and sideways. In the above case, Wave 2 was sharp and Wave 4 is being produced as a triangle. Please note that maximum rally was up to 9200 levels, unlike the expected 9800 (fibonacci 0.382 retracement of Wave 3). This is quite acceptable in such a sharp drop and one could be prepared for a Wave 5 drop below 8255 levels from here. If the above counts are correct, DAX could drop below 8255 levels to complete Wave 5 of the impulse drop that began from 13800 on February 17, 2020. Looking at the larger degree wave structure, the drop between 13800 and 8255 (or lower) could be either of part of the expanded flat 3-3-5 that began from January 2018, or could be the beginning of a much deeper correction. In either case, after the impulse drop is complete below 8255 levels, traders might be willing to initiate fresh long positions for a meaningful corrective rally at least. Alternately, it could be possible that Wave 3 is still progressing and a lower degree Wave iv is being produced before Wave v drops below 8255 to terminate Wave 3. If the latter is correct, Wave 4 rally should be unfolding soon.

Prepared by

Harsh Japee, Technical Analyst.

DAX Chart

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