In the week ahead we have plenty of news which will influence the markets, both economically and politically. Don´t be surprised to see Trump tweets possibly affecting markets.
If you use technical analysis in your trading, and you want to trade DAX, there are some things you need to be aware of here.
Since the 1st of January, 2019, DAX is up approximately 14%, making it one of the top performing indices in Europe.
The chart shows a strong bullish trend with a support line starting from the 4th of January. We are currently trading just above the trend line. The RSI is hoovering around the 50 level.
It’s hard not to notice the possibility of a bigger Head and Shoulder formation in the DAX chart. The formation of the right shoulder is not done yet, but we are very close to completing the second shoulder. Key for a possible break is a move below the neckline around the 12000 level. If Head and Shoulder pattern is formed and the price breaks the neckline, the potential target for a move lower can be at the 11580 area.
The Head and Shoulders pattern is believed to be one of the most reliable trend reversal patterns.
What is this pattern telling us?
After a long bullish trend, the price rises to a peak and subsequently declines to form trough. Secondly, the price rises again to form a second peak, substantially above the previous peak and declines again. When the price rises for a third time, but is only lower than the second peak, the price can begin declining again.
Notice that, like all charting patterns, Head and Shoulders also tells a specific story of what is going on in the market.
The initial peak and subsequent decline represent the waning momentum of the prior bullish trend. Wanting to sustain the upward movement fo as long as possible, the bulls rally to push the price back up past the initial peak to reach a new high. At this point, it is still possible that the bulls could reinstate their market dominance and continue the upward trend.
However, once the price declines a second time and reaches a point below the initial peak, it is clear that bears are gaining ground. Bulls try one more time to push price upward but succeed only in hitting the lesser high reached in the initial peak. This failure to surpass the highest high signals the bulls’ defeat and bears take over, driving the price downward and completing the reversal.
A possible trigger for a stronger momentum down can be DAX’s sensitivity to the China-US tensions.
Source, Chart by Bloomberg
