The German DAX index tumbled today, after hitting resistance near the 13430 zone on Monday. On the 4-hour chart, the index appears to be forming a short-term “double top” pattern, but before we turn our eyes to the downside, we would like to see the formation being completed. In our view, this may happen after the price falls below 13260.
If this is the case, the bears could then get encouraged to drive the battle lower, towards the 13185 zone, marked near the inside swing highs of December 5th, 6th and 9th. If they are not willing to stop there, then a break lower could extend the slide towards the low of 13105, marked by the low of December 12th. Another dip, below 13105, may pave the way towards the low of the day before, at around 13040.
Taking a look at our short-term oscillators, we see that the RSI turned down and just touched its toe below its 50 line, while the MACD, although positive, lies below its trigger line and points down. What’s more, there is negative divergence between both the indicators and the price action. Both indicators suggest that the index may start gaining negative speed soon and support the case for some further declines.
On the upside, we would like to see a strong rebound above 13430 before we start examining whether the short-term outlook has turned positive. Such a move would confirm a forthcoming higher high on the 4-hour chart and may set the stage for the 13530 zone, or the 13580 hurdle, which is marked by the high of January 24th, 2018.
