DAX & CAC Technical Outlook Improving (for Shorts)
DAX/CAC TECHNICAL HIGHLIGHTS:
- DAX dive furthers along descending wedge
- Close below 12104 will bring macro-top threat into focus
- CAC flirting with break of important support lines
DAX DIVE FURTHERS ALONG DESCENDING WEDGE
When we last looked at the DAX is was just starting to lose top-side momentum prior to the drop over the course of the past few days. The turn lower has quickly turned the picture increasingly bearish with the continued development of the descending wedge forming just beneath the February 2016 trend-line.
The wedge could ultimately resolve itself higher if the bottom holds, but given it is of the descending variety and the DAX’s overall lack of sponsorship while the U.S. hangs out in record territory does paint a bearish picture. But the bottom line is this, a break and close below 12104 will be needed to trigger the pattern, and if this becomes the case then the DAX is likely to pick up downside momentum.
A breakdown would be viewed as important given where the next level of significant support lies – the neckline of the broad 15-month-long head-and-shoulders pattern. Given its massive span, a break could spell big trouble.
Not to get ahead of ourselves, though, we’ll keep an eye on how 12104 is treated and take it from there. It’s support until broken, so we’ll continue to respect it as such. If we see a break soon, then things could get exciting fast, if no break materializes, though, look for further congestion before a resolution.
DAX DAILY CHART (DESCENDING WEDGE, 12104 SUPPORT)
DAX WEEKLY CHART (HEAD-AND-SHOULDERS POTENTIAL)
CAC FLIRTING WITH BREAK OF IMPORTANT SUPPORT LINES
Yesterday’s sharp decline has the CAC already testing important support by way of the June 2016 trend-line and underside of the wedge under construction since May. A break beneath trend-line and wedge support will quickly have the market searching for buyers at the July low of 5242.
By then the DAX will have likely already broken 12104 and, all-in-all, selling in Euro-zone equities may prove too much for support to hold until down to around 5040. But as is the case with the DAX, before getting too ‘beared up’ we must respect support until broken.
CAC DAILY CHART (JUN '16 T-LINE, WEDGE)
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