Bottom line: DAX long term structure continues to remain bearish against 13500/800 resistance zone. The indice has not only managed to carve a lower high around 13500 mark, but also broken below its support trend line since March 2020. Bears might be inclined to stay in control from here.

 Fundamental Outlook:

DAX had rallied through 12880 highs yesterday, closing +2.36% around 12860 mark. Futures are trading around 12900 as we prepare to publish. Global indices along with Dow Jones and SPX500 managed to close higher by +1.78% and +1.92% respectively. Hopes of another stimulus has triggered the recent rally in risk assets but investors might remain cautious over further optimism.

WTI Crude prices have remained stagnant after hitting $41.46 mark on September 18, 2020. The commodity trades around $40.35 for now and might remain under pressure over the next few weeks. The OPEC might not cut further production but sluggish demand over another round of COVID-19 infections might put pressure on the commodity.

Gold had dropped to $1848 last week, breaking critical support at $1862 mark. The yellow metal might continue to lose its shine as the US Dollar might strengthen further over the next few weeks. The metal has seen some bids coming through around $1850 mark as it trades higher towards $1881 as we prepare to publish today’s update.

Technical Analysis:

DAX has managed to pull back towards 12800/900 levels in the past two trading sessions, after having dropped through 12400 lows over the last week. The indice might soon face resistance and turn lower towards 12200 and 11600 in the next few trading sessions.

DAX has also broken below its trend line support from March 2020, entering into the sell zone. Bears might be poised to remain in control until 13500 highs remain intact. Also note that fibonacci 0.618 retracement of the drop between 13340 and 12340 is seen close to 12900 mark. High probability remains for a bearish turn from the near term resistance.

DAX had earlier dropped from 13800 through sub 8000 mark as an impulse wave. Ideally, an impulse drop is followed by a corrective rally which should stay below the previous top (13800, in this case). The indice has produced a counter trend rally which has stalled around 13500 levels before reversing lower again.

Furthermore, the corrective wave has stayed below the previous swing highs at 13800 mark. The overall structure continues to remain constructive for bears. Most traders might be preparing to initiate fresh short positions around 12800/900 resistance zone with a protective stop above 13800 mark and projected targets below 11600 and 8000 respectively.

Prepared by

Harsh Japee, Technical Analyst.

DAX Chart

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