DAX 30 and CAC 40 Technical Outlook – Bounces Face Immediate Resistance

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DAX 30/ CAC 40 Technical Highlights

  • DAX bouncing from 2011 t-line, neckline test coming
  • CAC has big overhead resistance just ahead too

For the intermediate-term fundamental and technical outlook for the DAX & Euro, check out the Q4 Trading Forecasts.

DAX bouncing from 2011 t-line, neckline test coming

The DAX traded down to the 2011 trend-line last week and found a low, but is immediately finding itself trying to test the neckline of the head-and-shoulders pattern dating back to last year. It’s a big test coming up. The gap that occurred on the neckline break will fill at 11524.

If the pattern is to hold its bearish potential, then the DAX is likely to turn down either right around the neckline or not long after a break above. Sometimes with these formations you will see a break above and then trade back below, and with 2011 trend-line just below the neckline it would be unsurprising to see this happen.

On a break back lower the 2011 trend-line will be up again and makes it a little tricky with it so close in proximity to the neckline. A clear break of the 2011 trend-line will have both significant technical thresholds in the rear-view mirror and likely a significant move lower continuing.

Should the DAX recapture the neckline it still has a lot of work to do to turn the picture bullish, perhaps bullish for a short while but strength at this time is not viewed as trustworthy from where I sit.

For market sentiment and to learn more about how to use it in your analysis, check out the IG Client Sentiment page.

DAX Daily Chart (Neckline test)

DAX 30 and CAC 40 Technical Outlook – Bounces Face Immediate Resistance

CAC has big overhead resistance just ahead too

Last week, the CAC broke below major support around the 5050/75-area. The broad formation since last year takes on a sort of ‘rounding top’, in-line with the H&S top the DAX posted. The current bounce has the breakdown area in full test and as is the case with the DAX and its neckline, old support is now viewed as big resistance.

Also, even if we were to see trade back above resistance the technical damage has been significant enough that a rally is viewed as being one which will eventually stall and turn lower. The respective 2011 trend-line to its German counterpart is quite a bit lower and will be targeted on further weakness at some point.

CAC 40 Daily Chart (Big resistance)

DAX 30 and CAC 40 Technical Outlook – Bounces Face Immediate Resistance

Want to learn more about trading the DAX? Check out ‘How to Trade the DAX’.

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—Written by Paul Robinson, Market Analyst

You can follow Paul on Twitter at @PaulRobinsonFX

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