The German DAX traded higher on Monday after it hit support near 15100 on Friday. That said, the recovery was stopped by the 15330 level, still below the downside resistance line taken from the high of Nov. 19. As long as the index continues to trade below that line, we consider the short-term outlook negative.
However, to become more confident on a trend continuation, we would like to see a decisive dip below the critical support zone between the 15030 and 15100 barriers, marked by the lows of Friday and Nov. 26. Such a dip would confirm a forthcoming lower low on the 4-hour chart and may open the way towards the 14815 barrier, defined as a support by the low of Oct. 6.
If that barrier doesn’t hold, its break could carry more significant bearish implications, perhaps setting the stage for declines towards the 14515 area, which provided decent support between Mar. 22 and 25.
Shifting attention to our short-term oscillators, we see that the RSI turned down after hitting resistance at 50. At the same time, the MACD stays within its negative territory although still above its trigger line. Both indicators detect downside speed, but the fact that the MACD remains above its trigger line makes us cautious over another potential bounce before the next leg south.
On the upside, we would like to see a decisive break back above 15515 before we start examining the bullish case. This may confirm the break above the aforementioned downside line and a forthcoming higher high on the 4-hour chart.
The bulls may then push the action towards the 15745 barrier, marked by the inside swing low of Nov. 24, the break of which could extend the advance towards the 15965 zone, marked by the high of Nov. 25.
