DailyFX.com -
What's inside:
- The DAX holds key trend-line support, but…
- Now close to facing off with an upper parallel, resulting in the market becoming 'boxed in'
- A couple of pointers worth considering
In Tuesday's commentary we were discussing the then breaking trend-line off the June low and the confluence of support below by way of a pair of bottom-side trend-lines; one long-term another intermediate-term.
As it stood by day's end, the confluence of support was never touched as neither did the DAX close swiftly below trend support. For starters, an important lesson here: To get confirmation on a break, when dealing with daily bars, we must wait for the bar to close above, or in this case, below support. This goes for any time-frame, breakouts or breakdowns can reverse intra-bar and thus provide no valid signal.
The reversal on Tuesday brings us to our current price action. There is a set of parallels extending back about a month, with the upper running down from 9/8 over the 9/22 peak. Still rising from the south is the trend-line from June we nearly broke the other day. This is leaving the DAX in a position of getting 'boxed in' from two differently angled trend-lines, or 'wedging up', or however you want to reference it. In any event, this could be a good thing should it further itself into the corner and then make a strong break for it.
Which way will it break, you ask? The trend still remains upward since June, although recent price action isn't the most encouraging with a couple of lower highs and lower lows in there. It could be a consolidation for a move up or the trend-line may give way. So it's a good question. Instead of predicting which way the market will break we will trade from a reactionary stance, which is where we usually start from in the first place. If the market does this, you do this; if the market does that, you do that. It might sound like an oversimplification of trading, but the point is thatreacting over predicting is a good protocol to follow.
With a little more time, the DAX could position itself in the corner of the box/wedge. A breakout to the upside will bring the area around 10800 into focus, while a break lower brings an August trend-line into play and the 10260s held the other day; and with further weakness, the backside of the 2015 trend-line, lower month-long parallel, and August low at 10092.
DAX: Daily
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---Written by Paul Robinson, Market Analyst
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
