Dax remains in an overall downtrend

Equities 4 minutes to read

Summary:  The Dax index appears seems to be have broken its near-horizontal neckline in a shoulder-(dual) head-shoulder formation, demonstrating that its recent recovery doesn't tell the whole story.


I am often asked what the German Dax index will do next. Over the past couple of days, of course, the German benchmark seems to have rebounded in line with most global stock markets after last week’s massive sell-off. But where are we headed now?

There is no such thing as certainty in financial analysis; what we look at are the possibilities. We look to find patterns that might repeat themselves. Taking a closer look at the Dax, and focusing on the time period where the downtrend accelerated this past summer, there seems to be a repeated pattern in place where corrections occur.

Every sell-off is followed by a correction up to around 0.618 or 0.764 retracements. If that pattern repeats itself, we could expect a correction taking DAX up to around 12,075 which is the 0.618 retracement. 

Dax daily chart

Here we see a sell-off after a double-top pattern – the right shoulder on the weekly chart – followed by a 0.764 correction. The next sell-off was followed by a 0.618 correction. The next one after that was followed by a 0.764 correction before the most correction.
Source: Saxo Bank
Is it all over, though? Might we even be poised for a year-end rally?

Hardly. Or at least it hardly seems that way when we look at the bigger picture I first discussed a few days ago (and a few weeks ago before that).


Well that’s when we look at the bigger picture I posted a few days ago (and a couple of weeks ago before that).  

The Dax seems to be have broken the near-horizontal neckline in a shoulder-(dual) head-shoulder formation. The index broke the neckline last week, finding support at the 200-week moving average and is now trying to crawl back above. This is called a pullback, and pullbacks occur in roughly half of all bearish pattern breakouts. 

A correction to 12.075 will take the index back above the neckline, but that doesn’t mean the pattern is broken. We would need a much bigger comeback before saying that.

We can discuss that if and when the Dax breaks 12,500!

The Dax index is in a de facto technical downtrend on the daily and weekly charts, and on the monthly as well. If we close below this week’s low, brace yourself... further downside is very likely.
 
Source: Saxo Bank
Disclaimer

Saxo Capital Markets (Australia) Pty Ltd prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Combined Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Pty Ltd.
Level 25, 2 Park Street
NSW 2000
Sydney
Australia

Australia

The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Pty Ltd ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms & Combined Financial Services Guide & Product Disclosure Statement to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Trading in leveraged products such as CFDs and Margin FX products may result in your losses surpassing your initial deposits. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.
Please click here to view our full disclaimer.