German DAX at important junction

Daily Gold and Dollar index analysis
October 20, 2014
Daily analysis on the Dollar index and Gold
October 24, 2014

The German DAX index has staged along with US indices an upward reversal towards the 8900 H&S neckline similar to the 1904 neckline and August lows of SPX. In today’s analysis I point out what should we expect and what my bigger picture for DAX shows. The decline in DAX from the September highs is most probably complete with 5 waves as shown in the first chart below.

dax

Dax  is now back testing the break down level of 8900 and has made a high a couple days back at 8850 inside the consolidation area of the previous fourth wave which reached 8860-70 levels. My preferred view is to see a rejection at 8850 and a pull back towards 8500-8450 as wave 2 if we consider the rise from the October lows as wave 1. My preferred scenario implies that at the October lows we completed a huge three wave correction as shown below.

dax3

If however the low at 8350 area is broken, we should expect the downward pressures to push the index below 8000 and closer to the pattern target of 7700-7600. Bears however should be very cautious in case we see a break above 8880 neckline where an inverse pattern is being formed.

DAX2

Today’s reversal from 8645 pushes the index towards its neckline as SPX did reach 1904. A rejection at current levels and near 8830 will signal a sharp decline should be expected towards 8500. Otherwise, breaking and closing above 8880 will give me 9300 as the target of the Inverse H&S.

As always, thank you for taking the time to read my new post.

A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

Head And Shoulders Pattern

A technical analysis term used to describe a chart formation in which a stock's price:

1. Rises to a peak and subsequently declines.
2. Then, the price rises above the former peak and again declines.
3. And finally, rises again, but not to the second peak, and declines once more.

The first and third peaks are shoulders, and the second peak forms the head.

Head And Shoulders Pattern
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.