DAX Head and Shoulder pattern

S&P short-term correction is over
March 13, 2014
Gold short-term weakness
March 17, 2014

DAX index has shown signs of weakness for some time now. DAX has not followed US indices to new all time highs but instead it has been trending downwards making lower lows and lower highs for some time now. The turmoil in Ukraine, the rising EURUSD and decreasing growth prospects from Asia have all influenced DAX. The German index has been trading in a downward sloping channel and unless we see a break out above 9250 we should expect more downside pressures.

dax3

The longer term technical view of DAX is worrying. Yesterday we broke down below an important and long-term upward sloping channel as shown in the chart below. Additionally we have also started a bearish pattern in the weekly chart of lower lows and lower highs.

DAX2

In the shorter-term, DAX has formed a Head and Shoulders pattern that has a neckline at 9100-9200 that is already broken. The H&S pattern has its target near 8300. A more conservative target of this bearish pattern is at 8550.

dax

Bulls will need to break above the neckline in order to have chances of survival. This bearish reversal could imply a big downward correction of a larger degree that could last even 2 or 3 months. Concluding, trend is down and we expect 8300 to be reached. The 9250 level is crucial for the short-term trend as a break above this level could mean the cancellation of the H&S pattern. Additionally the decline from it’s all time highs looks impulsive which adds points to the bearish scenario. So our view is bearish for all time frames. Caution is advised for bears if the index stages a reversal and manages to close above 9250.

Alexandros Yfantis
Alexandros Yfantis
Fascinated by financial markets, studied International Securities Investment and Banking in the UK, works as a Portfolio Manager in Greece and runs a technical analysis website. Enjoys travelling and spending time with his family and preparing for the black belt in Korean Karate.