dax potential recovery above 10380 medium term pivotal support 1827822016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) had a highly volatile trading session yesterday as it traded a range of 2.6% (the largest daily range since 09 August 2016) where it staged an initial strong rally to print a high of 10659 in the opening hour of yesterday’s European session before it plummeted to print a low of 10387 in the next 2 hours without any major Germany/Eurozone economic data release.

After hitting a low of 10387, it has started to trade sideways and interestingly yesterday low of 10387 is very close to our predefined 10380 medium-term pivotal support set for this week (click here to recap the details as per highlighted in our latest weekly outlook/strategy published yesterday).

Today key Germany/Eurozone economic data releases as follow:

• Germany Markit Manufacturing PMI for Aug (preliminary) @0730 GMT (53.5 consensus)
• Germany Markit Services PMI for Aug (preliminary) @0730 GMT (54.3 consensus)
• Eurozone Markit Manufacturing PMI for Aug (preliminary) @0800 GMT (52 consensus)
• Eurozone Markit Services PMI for Aug (preliminary) @0800 GMT (52.8 consensus)
• Eurozone Consumer Confidence for Aug (preliminary) @1400 GMT (-7.6 consensus)

Key elements

• Based on the Elliot Wave Principal/fractal analysis and in conjunction with other technical analysis studies, the 10380 support level is a potential inflection point to see a rebound in price action.
• The 4 hour Stochastic oscillator has traced out a bullish divergence signal which suggests that the downside momentum of yesterday’s decline has abated. This observation reinforces the potential rebound scenario at the 10380 support.
• Near-term resistance stands at 10640 (yesterday’s minor swing high) followed by the more significant resistance of 10870 which is defined by the medium-term swing high areas of 07/30 December 2015 and a Fibonacci cluster.

Key levels (1 to 3 days)

Pivot (key support): 10380 (medium-term)

Resistances: 10640 & 10870

Next support: 10090

Conclusion

As long as the 10380 medium-term pivotal support holds, the Index is likely to shape a potential recovery to retest the minor swing high at 10640 before target the next resistance at 10870 in the first step.

On the other hand, a clear break below 10380 is likely to invalidate our preferred medium-term bullish view to trigger the start of a corrective decline to retrace the entire up move from the Brexit’s 24 June 2016 low. The next support rests at 10090 which is defined by the medium-term swing low area of 03 August 2016 and close to the 50% Fibonacci retracement of the entire up move from 24 June 2016 low to last week high of 10806

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