Dax remains in an overall downtrend
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
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.
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.
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.
Latest Market Insights
Quarterly Outlook Q3 2022: The Runaway Train
- Central banks' attempts to kill inflation is a paradigm shift, which could end in a deep recession.
Tangible assets and profitable growth are the winnersWith US equities officially in a bear market, the big question is where and when is the bottom in the current drawdown?
Understanding the lack of investment appetite among oil majorsThe everything rally seen in recent quarters has become more uneven, as its strength is driven by commodities in short supply.
The pressure is on as the wind leaves the sailsWith cryptocurrencies in sharp decline, are we entering a crypto winter or is the bear market a healthy clean-up of the crypto space?
Why the Fed can never catch up and what turns the US dollar lower?Many other central banks are set to eventually outpace the Fed in hiking rates, taking their real interest rates to levels higher than the Fed will achieve.
Bank of Japan: Swimming against the tideThe Japanese economy has gone from the age of deflation to rapidly rising prices in no time, leaving the Bank of Japan in a pickle.
Green transformation detour and bear market hibernationWith the impending risk of global econonomic derailment, we share the five things investors need to consider in this new half year.
Crisis redux for the eurozone?Whether there's going to be a recession in Europe or not, the path towards a stable economy will be agonizing.
Technical Outlook: Gold, Oil and a remarkable multi-decade perspective on EquitiesThe Nasdaq bubble pattern, USDJPY resistance, crude oil uptrend losing steam and the technical outlook for USD.
China: the train of new development paradigm left the station two years agoChina is transiting to a new development paradigm, as they are hit by deteriorating terms of trade, a slower global economy and an uncertain future while continuing attempts to contain the pandemic.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)