Technical Analyst, Saxo Bank
DAX performed new highs Friday spiking above 14,440 but failed to close above meaning the Evening Doji star top and reversal pattern is still in play.
RSI did not close higher despite a higher close in the DAX thereby showing divergence i.e., imbalance in the market and a sign of a weakening trend. If DAX closes below 14,149 the reversal scenario has been confirmed. A reversal that could take DAX to test the short-term steep rising trend line and 13,947. However, no strong support until around 13,564.
A close above Fridays high at 14,458 will extend the uptrend to 14,700-14,900.
The GER40cfd/DAX future closed Friday a few points below the peak last week at 14,442.
RSI divergence here indicating an exhaustion of the uptrend. However, GER40 needs to break below 14,122 to confirm the reversal. Strong support around 13,570
A break above 14,458 the uptrend is set to be extended to around 14,710
RSI divergence: When instrument price is making a new high/low but RSI values are not making new high/low at the same time. That is a sign of imbalance in the market and an weakening of the uptrend/downtrend. Divergence or imbalance in the market can go on for quite some time but not forever. It is an indication of an exhaustion of the trend
Author of this article is holding a short position in DAX.
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