DAX Xetra (cash index)
A huge decline on German equities has dragged the DAX sharply lower in the past few sessions and it is now on the brink of a significant downside break.
The market is been trading in a range broadly between 12,600/13,200 for the past seven weeks, and having looked in the wake of the ECB as though there would potentially be a break above 13,200 the market is now eyeing a break of the 12,600 support.
Huge (and sharp) bear candles have formed in the past two sessions and a massive gap lower today has continued the downside pressure.
The support of the neckline pivot around 12,600 is being tested early today, but will it break decisively?
Although the neckline was breached on an intraday basis in late May (when the market dipped briefly to 12,547), the neckline held on a closing basis.
Subsequently a close below 12,600 would be a significant bear move.
The problem is that the volatility in this move could mean that equities continue lower, but equally the market could quickly turn higher once more (presumably the case should there be any improvement in the tit-for-tat trade dispute).
How traders react to an intraday bounce could be key now as intraday rebounds have recently been used as a chance to sell.
Technically there has been a clear deterioration with the RSI dropping back, whilst Stochastics have crossed lower again and the MACD lines are falling back.
However the indicators are just showing noise within what is still a ranging market, so chasing for a downside break before one is seen would be somewhat risky.
- There is now a second gap open around 12,780 as resistance within what is still an intact range.
- The sellers will be looking for a close below 12,600 in addition to an intraday break of 12,547 which would then open the next reaction low at 12,312.
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