Dax Technical Analysis 03/01/2017

Good morning traders!

Happy new year to everyone, may it be a highly prosperous one for you all.

Yesterday trading opened on the Dax, but it was a bank holiday here and my FXCM account was not open. I decided not use my IG account as the first day can be quite volatile and I let the new year craziness calm first. We had a significant rally yesterday, we passed 11500 for the first time since Aug 2015, we broke the recent consolidation which followed the strong December rally and we find ourselves nearing another significant technical level 11630. European indices are generally all performing well and tracking their US counter parts, specifically the FTSE which recently reached record highs along with the MDax (Dax’s middle index), so sentiment is strong, so strong that analysts are concerned for the sustainability of the move and have even mentioned ‘mania’.

20th January is one of the biggest calendar events this month, with Top Trump getting inaugurated. He’s said a lot of words, now it’s time for him to deliver something to support that.

Back to the Dax, I think many investors are starting to call a top to the current move and looking for something in the next two weeks. Some are expecting a move to 11300 and others are looking for a much deeper move towards 10900. But there has still been plenty of activity from private investors and if the Euwax sentiment index is anything to go by, it’s possible we have plenty of room to move still higher, because the majority of investors are now net short, which may make a fierce sell off less likely, bare with me on this. The logic behind this is that should the prices rise, investors have to sell their leverage products relatively quickly, to limit the losses. In the case of falling prices, these short positions are also gradually sold in order to gain profits. In both cases, purchases are made, which causes rising prices or at least limits the potential of falling prices. Follow me?

But let’s leave that to the side for now, you could argue both sides, let’s just look at the charts.

Dax Technical Analysis

I am bullish above 10570.

On the daily chart, we are bullish but overbought. We are above the daily 200 EMA, we’ve burst out through the bullish trend channel and printed yet another strong bullish candle yesterday. MACD is above the zero line and turning positive again, we are also at a new 2017 high, :-D. However we have technical resistance around 11630. If I can resist the FOMO trade, buying opportunities seem better from lower prices, otherwise I risk buying at the top and being caught out.

On the H1 chart, the recent consolidation range, been swept aside without a second look. We are approaching the 11630-11680 resistance level from the underside and this could open up an opportunity to short. If we were rejected from current levels, and we took a Fibonacci retracement from the low to the high, that would make the targets 11535 11509 and 11484 with a stop above the highs, but it’s not a high probability setup given the relentless momentum recently.

On the m5 chart, we see price rally the best part of 200 points. The pivot point indicator has spread the levels wide based on the move yesterday, relative to previous days, so they won’t provide much information today, but a break below the daily pivot could be interesting. RSI is currently overbought and coming back through the 70 level, offering a selling opportunity, but that’s a standard setting for a neutral market and we are pretty strongly bullish instead, so I won’t take that signal. I am interested to see a reaction at R1.