Lower levels likely for German equities
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: An SHS pattern that began to emerge in the DAX in early September is now coming into much sharper focus. What's more, several technical indicators suggest that things could get worse from here.
Some weeks ago it became apparent that an S-H-S pattern in the DAX seemed to be unfolding:
Medium term, next couple of months, weekly chart – as of 11.09.2018:
Taking a closer look at the weekly chart an interesting scenario could unfold. Not only has the DAX broken bearishly out of a triangle-like pattern but the index is close to confirming a Shoulder-Head-Shoulder (SHS) pattern – not a straightforward SHS as it has two heads but nonetheless an SHS pattern. (The head was actually a double top which was concluded in Q1 2018 when dipping below 12.000). Another little caveat is that the neckline is sloping downwards. An SHS pattern with a downwards sloping neckline usually performs worse than an upwards sloping neckline, i.e. if breaking the neckline the drop could be of less magnitude – it has already moved most of the way AND if dropping down to test the neckline the 200-week moving average will act as a support which could be around the 11.500 level.
Update as of 11.10.2018:
That’s more or less where we are now. As can be seen from the weekly chart there is not much strong support before around 10.800. So it can get much worse. The 10.800 would be the minimum target for the S-H-S formation.
However, in the short term we could see some rebound. It is not unusual to see pullbacks where the market retests the neckline from beneath before the next likely sell-off. RSI and MACD are bearish with no divergence so all indicators are pointing lower. Bollinger® bands are expanding, indicating the initial stage of a (medium-term bearish) trend.
Latest Market Insights
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.