Dax Technical Analysis 05/02/2017

Good morning traders!

I am watching the Superbowl right now, it’s 20:0 and Tom Brady has his head in his hands, I know how that feels, especially when trades don’t go my way.

I was reading some articles over the weekend and catching up on the world of establishment politics and Germany’s Social Democratic Party may have found the man to win back the working class voters before the federal elections later this year: Martin Schulz. A miner’s son, a high-school drop out and recovering alcoholic who became mayor, then a member of European Parliament, then its President, now there’s a chance he can become German Chancellor. This is significant because times are possibly changing. Germany may be benefiting from a bullish economy (with yet more room to grow even still) with a decent level of growth, strong labour market, budget surpluses and record

This is significant because times are possibly changing. Germany may be benefiting from a bullish economy (with yet more room to grow even still) with a decent level of growth, strong labour market, budget surpluses and record company profits (ignoring Danske), but the world outside of Deutschland is experiencing a major transformation. The EU is suffering its worst crisis since its inception with Brexit threatening to open the floodgates, especially with Marine Le Pen waiting in the wings. We also have plenty of Geostrategic threats just outside the continents with Turkey on it’s way to an autocratic future, non-stop conflict in the middle east, Putin still playing war games and now tensions between China and US are about to boil over, but all pale in comparison to the largest threat: Donald Trump.

None of this is new. Is it going to have an immediate impact on the Dax this week? Maybe not, but it’s good to keep updated with what’s happening because it will. The article I was read concluded that if Germany is to continue its prosperity, then it needs to adapt to the evolving geopolitical climate, right now there seems to be little political interest in pushing through reform. On a different note: did you see the Die Spiegel front cover? I did laugh!

Dax Technical Analysis

Are we looking at a developing Bear Flag?

The weekly candle last week was red for the first time in 6 weeks, the most previous bearish candle was more of a doji than anything else, so traders will be wondering whether this could be the start of the first meaningful pullback for the last few months. Most of the bearish damage was done on Monday and Tuesday but the volume is still low, suggesting there is no real appetite for bulls to buy at these levels just yet.

The last couple of daily candles suggest indecision and would I be forgiven for suggesting that this looks like a bear flag developing (ignoring the unintentional pun)? After the opening action from Monday and Tuesday, we just about tagged the 50% retracement on Wednesday which has drawn a decent resistance level on the charts and for the rest of the week we failed to make further gains. Watch a break of the flag for lower prices.

01 Dax Daily Chart
01 Dax Daily Chart

On the hourly chart, we have broken above the previous 630-650 range resistance zone and price is inside two channels; we have a rising bear flag channel [1] +[2] and we have a horizontal channel [3] + [4]. Most bears will be watching for a break of [2] to suggest that the bearish move will continue and the selling pressure will take off again. A sell with a stop loss somewhere above [3] would be a popular play. However [4] could slow things down again so the more conservative trade may be a wait for that. If that play does play out then a fib extension could suggest possible targets.

03 H1 Dax Chart
03 H1 Dax Chart

Dax Support & Resistance

KEY LEVELS
Daily R211735
Daily R111698
Daily Pivot11661
Daily S111623
Daily S211586
200 Day EMA10776
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