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 the S&P 500. In this analysis I point out what we should expect and what my bigger picture for the DAX shows.
The decline in the DAX from the September highs is most probably complete, with 5 waves as shown in the first chart below:
The DAX is now backtesting the breakdown level of 8900 and made a high a few 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 pullback 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:
If however, the low at the 8350 area is broken, we should expect the downward pressures to push the index below 8000 and closer to the head and shoulders pattern target of 7700-7600. Bears however should be very cautious in case we see a break above the 8880 neckline, where an inverse pattern is being formed.
Today’s reversal from 8645 pushes the index towards its neckline as the 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.
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