Technical Update - DAX & GER40 forming top and reversal patterns
Kim Cramer Larsson
Technical Analyst, Saxo Bank
DAX and GER40 have formed Top and Reversal patterns and seem ripe for a correction. Still upside potential though
DAX has formed an Evening Doji top and reversal pattern on Daily chart. It is not textbook perfect (as that would have required the Shooting star like candle to be a long positive one) but nevertheless an indication of top and reversal in DAX.
There is risk to further upside it should be noted, with RSI not showing divergence despite being in overbought territory and if DAX closes above to peak of the reversal pattern i.e., above the Doji peak at 13,441 the reversal pattern has been demolished and DAX could move to 13,709 possibly 13,902 resistance.
However, with this top and reversal pattern a correction should be expected likely down to the 0.382 retracement at 13,439. There is support at 13,564 and the 200 daily SMA also offers some support. If RSI closes below its lower rising trendline it would be a strong indication of the correction scenario to unfold.
The GER40 cfd/DAX future has formed three Doji’s in a row i.e., indecisive market. If GER40 forms a negative candle today with a close below 14,122 this formation should be considered a top and reversal pattern. A reversal that can take GER40 down to 13,570-13,435.
If GER40 closes above 14,442 the reversal pattern is demolished and GER40 is likely to move to 14,710 is needed. With RSI not showing divergence this is greater upside risk than if there was RSI divergence.
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