06-02-2018 Dax Technical Analysis

Good morning traders. Did you survive that onslaught? The featured image above shows the daily profiles for the DAX (TPOs) and the blue lines from the left are previously untouched Points of Control (naked POCs). Price can be drawn to these levels. Well, a large majority of them were taken out yesterday and Friday.

February 2018 Market Meltdown

I remember watching it last night with a few of the premium subscribers in our channel and we were all trying to figure out what was happening. The conclusions and opinions were varied but we shared a common belief that the markets are incredibly overvalued at the moment. I believe that the recent activity (certainly in the US) was beginning to represent market mania. Market mania often precedes a [large] correction. A large correction is what we just witnessed, for now. We have now seen a 1500 point decline from the all-time highs (approximately an 11% correction).

So how do we know if this is the start of an epic market reversal? Simple. The trend continues to the downside for a prolonged period of time and prints lower lows and lower highs on the major pivots to eventually break towards 10,000.

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06-02-2018 Economic Releases

Nothing major to be aware of regarding the EU today according to the Economic Calendar

2018-02-06_0928

06-02-2018 Dax Strategy

We expect a bounce in the short term, which may provide a better spot to short, but we are bearish below 13130. The target for bounces varies, but as volatility perhaps begins to pick up, I will turn my attention to looking for Wide Range Outside Bar alerts.

Wide Range Outside Bars may not provide all the answers, but will at least help me identify the start of potential ignition points. As always, indicators are not a replacement for your skill in reading price action. They are only a guide.

Here’s an example of my Wide Range Outside Bar indicator:

06-02-2018 Dax Charts

Weekly

Draw a modified Schiff using the three major pivots that form the ‘mountain’, starting at the major low in 2014. Add the quartile lines and notice how price has previously reacted at the first quartile. We tagged it again yesterday. We can also draw a regular fork from the three most recent major weekly pivots.

A break of 11865 opens up the possible move back towards the 2016 bullish ignition point, somewhere closer to the 10k level.

Daily

Have a look at that recent gap, because one question we are asking at the moment is; could that represent a potential balance point? If the gap is a potential balance point then extending that forward can provide a short-side target somewhere close to 11750.

If you also scroll out to mid-2016 and draw a line from the two major lows (mid-2016 and late-2016), you will notice that this line cuts through that gap. This is only a coincidence, but an interesting observation.

We have also drawn an Action Centre Reaction line set using the Expanding Pivot support line as the centre and the all-time high as the action. It projects a reaction line just below that 11750 target, so we are watching that too.

Hourly

If we do get a significant bounce from the recent lows, then perhaps one of these ignition points can get a visit. We find that when the Dax creates a wide range bar, then the price action can act similar to a ‘gap’. You know how price action often responds to gaps, it normally gets filled, right?

If you mark out the spots where price ‘gets thrown off a cliff’ these are interesting for two reasons. Firstly, they can act as profit targets for bounce trades. Second, they could be potential turning spots to short from if price gets there.

06-02-2018 Dax Key Levels

KEY LEVELS
POC *12680
Value Area High *12749
Value Area Low *12596
14 Day ATR203.09
200 EMA12681
50 EMA13123
Daily R212996
Daily R112630
Daily Pivot12386
Daily S112020
Daily S211776
*These are FXCM numbers, not futures numbers. Please be aware that FXCM can often be 5-10 points higher than futures prices

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