Dax Technical Analysis 19/12/2016

Good morning traders!

During the last few trading days before Christmas, investors in Germany are expecting to see further price gains on the Dax whilst it continues to benefit from the hope that the new US president will trigger an economic boom in the US.

On Friday we passed the 11430 mark, which was a key target for many traders and one might be forgiven for thinking that traders will be wanting to unwind their positions in the lead up to Christmas with price reaching a significant technical level. So we have a bullish fundamental theme, but the technicals suggesting that price is stretched long.

On the daily chart, the stretched long theme is pretty clear. The Dax has rallied nearly 10% (over 1000 points) over the last 10 trading days (from the low to the high of that period) and we have touched the trend channel resistance. We have passed 70 on the daily RSI, and prior to December ’16 the last time we did that was Aug ’16 (and Oct ’16 before that). Both times we saw subsequent bearish divergence. I’m not suggesting this is statistically significant, but it does provide me with a trading idea. I’d like to see a pullback, then another rally past this 11430 level, print bearish divergence and then short the market in early 2017. I don’t really want to make a prediction, but that’ll be a setup I will watch for.

On the H4 chart, we have moved away from the upper bound on the Bollinger band and are approaching the median line, although we are following a sideways trajectory. The oscillator (stochastic) is still overbought and there is bearish divergence here, although I tend not to use that oscillator for divergence signals. We have a bullish trend channel to watch a little closer because a break one way or the other could provide a signal.

On the H1 chart, we can still see the horizontal range lines from November (the range between 10570-10800), what is interesting at the moment is that a Fibonacci retracement from the December low to the December high puts the 61.8% retracement on the previous 10800 resistance. This would provide an excellent technical confluence, should price correct from current levels down to those levels, because it would allow us to buy down there with a fairly high probability that the support would hold. But let’s be honest, the Dax doesn’t often care about pretty patterns on a chart.

On the m5 chart, the daily S1 (pivot point indicator) is an interesting level with a small stop loss, it can provide good reward:risk. If we break as low as the S2, then this approaches the 50% retracement of our trading range for last week, so it’s another interesting level. We are short-term bullish above 11338.