Stumbling into a storm?
Asian markets began the week with substantial losses as the region followed Wall Street's Friday example where sentiment deteriorated after the inverted US yield curve stoked recession fears.
Summary: A rebound in the Dax (cash index) could take the market to around 11,586.
Despite no divergence on the relative Strength Index, we could see a short term rebound in the Dax over the next couple of days. In fact, it has already started.
Last Thursday saw the index form a bullish engulfing pattern followed by a candle with a large lower shadow, both indicating that selling pressure has lifted (see Figure 1).
The Lower Bollinger band is also contracting, indicating the bear trend is over... for now.
Looking at Figure Two we can see that GER30.I is currently testing the falling trendline and the gap from October 23. The gap should be closed within the next couple of days. In fact, if the gap is not closed in the next couple of days we are likely to see sellers regain control.
The rebound could take the Dax (cash index) to around the 0.382 retracement of the October sell-off, so around the 11,586 level.