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DAX still strong but will the profit takers move in?

DAX Xetra (cash index)

Another early consolidation on the DAX this morning as the run higher slows, but is this just another pause for breath in the rally?

After six days of gains in which the market broke out above 11,865, a two day confirming close above the resistance really helps to confirm the bullish move.

However, this comes with the momentum moving to an overstretched position with the RSI into the 70s.

This is a rare occurrence for the DAX in the past 18 months and tend to lead to a consolidation of some degree.

There is also a tendency for DAX breakouts to find addition traction higher a struggle.

Coming with the market hitting the upper limits of an uptrend channel yesterday, trading outside the top of the 2.0 SD Bollinger Band, and RSI stretched, this would suggest immediate upside potential could be limited.

With this string of exhaustion signals, there could be a temptation to take profits.

  • If this were to be seen, the support band of 11,725/11,865 looks like a prime entry buy zone for the next leg higher.

The hourly chart shows the hourly MACD lines crossing back lower, an hourly Stochastics corrective signal and hints at an unwinding move now.

  • Initial resistance at 12,029 from yesterday’s high, whilst the medium term implications of a breakout above 11,865 has opened 12,458.

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At Hantec Markets Ltd we provide an execution only service. Any opinions expressed by analyst Richard Perry should not be construed as investment advice or an investment recommendation. This report does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. Forex and CFDs are leveraged products which can result in losses greater than your initial deposit. Therefore you should only speculate with money that you can afford to lose. Please ensure you fully understand the risks involved, seeking independent advice if necessary prior to entering into such transactions.