DAX bears Head and Shoulders above bulls

In a quick follow-up to our DAX report published on Friday (see "DAX: More weakness or rebound in February?" for more), the German benchmark stock index is currently displaying a bearish technical pattern on its intraday charts, which points to further losses in the near term.

As can be seen on the 1-hour chart, below, the DAX has formed a clear Head and Shoulders reversal pattern. It has already broken below a rising trend line, but as we went to press it was still above the neckline of the H&S around 9600. If this level breaks, it would validate the H&S pattern, and potentially lead to a big drop, with the initial target being around 9510/20 area.

But traders who look at the longer-term charts (such as those we published on Friday) will realise that the DAX may have already formed a base around the 9300/25 area.

Indeed, there is a possibility for a more significant bullish pattern to emerge around the first bearish target of 9510/20 area. This is where an ABCD pattern meets a couple of Fibonacci levels i.e. the 61.8% retracement of XA and 121.2% extension of BC price swings. In other words, a Bullish Gartley pattern could potentially form around this 9510/20 area. So, speculators may wish to keep a very close eye on this area, should we get there.

If, however, 9510/20 breaks decisively then the index could drop to the next Fibonacci-based targets as shown on the chart, or even go for a revisit of the 9300 area before deciding on its next move.

On the upside, a rally beyond the right shoulder (or point C of the ABCD pattern) at 9850 would invalidate the abovementioned bearish pattern. In this scenario, a follow-up rally above the key resistance level of 9900/30 would then become highly likely. 

Figure 1:

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.