DAX defended the neckline

Last week was good for the global indices. Maybe not in the emerging markets but the largest economies enjoyed their ride for sure. On the Sp500 we bounced from the major up trendline and almost touched new all-time highs. In this analysis, we will focus on the DAX, which also made a bounce and it did not happen in a random place.

DAX Daily Chart
DAX Daily Chart

The reversal that took place in the last week, happened on the long-term neckline of the large head and shoulders pattern (red). Price breaking that neckline would be a major sell signal. Actually signaling a start of the European bear market! Buyers managed to defend this line but the upswing stopped on a mid-term resistance created by the lows from June and July (orange).

As long as we stay below this line, the price is in a no-man’s land. A breakout here will give us a buy signal. Trading on Monday confirms this resistance and currently, we are experiencing a bounce. This may indicate a willingness for a drop and a second test of the neckline mentioned in the previous paragraph.

 This article is written by Tomasz Wisniewski, a senior analyst at Alpari Research & Analysis