dax 10380 medium term support challenged but not enough bearish elements 1832052016

Daily Outlook, Tues 27 Sep 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has tumbled by 2.3% from the start of yesterday’s European session high of 10580 trigged by the legal woes of Deutsche Bank as media reported that leading German lawmakers have suggested that they are “unwilling” to bail out Deutsche Bank if it falls short of the new capital requirements as imposed by the new Basel III rules due to the latest hefty fine of U.S. $14bn imposed by the U.S. Department of Justice over mis-selling of U.S. mortgage securities. Secondly, the uncertainty that aroused from the upcoming U.S. presidential elections as polls have indicated a close fight between Hilary and Trump as we head into the first debate that was just concluded in today’s Asian mid-session.

However, selling resumes in today’s European session (27 September 2016) as the Index has now pierced below the 10380 medium-term pivotal support as per highlighted in our latest weekly technical outlook/strategy published yesterday (click on this link to recap).

After a close examination on its technical elements, we are not confident at this juncture to validate a bearish case for the Germany 30 Index and the current decline may be a “bear trap”. Details as per highlighted below.

Key elements

The Index is still holding above the excess support of 10230 which is defined by key pull-back support (depicted in dotted green) of the former long-term descending range bullish breakout and a Fibonacci cluster (see daily chart).
In terms of fractal analysis, the on-going decline in price action in place since 15 August 2016 high of 10806 has now started to shape a similar “Expanding Wedge” (depicted in dotted purple) consolidation seen in the recent months from 21 April 2016 to 24 June 2016 before the price action reversed to the upside. Interestingly, the current similar ‘Expanding Wedge” formation’s lower boundary (support) also confluences with the 10230 excess support level.
The daily (medium-term) RSI oscillator is still holding above its key long-term ascending trendline support (depicted in dark blue) in place since late August 2015. In addition, the hourly (short-term) Stochastic oscillator has reached an extreme oversold level. These observations suggest that the downside momentum of the current decline seems to be “overstretched” where a potential bullish reversal may occur at this juncture.

Key levels (1 to 3 days)

Supports: 10230 & 9760

Resistances: 10380, 10540 & 10700

Conclusion

Even though the 10380 is being challenged on an intraday basis but there are not enough elements to turn outright bearish at this juncture. In fact, the Index may see a “bear trap” based on the aforementioned elements.

Therefore, we have turned neutral for now and wait for a move back above 10380 to revive the preferred bullish scenario for a potential push back up to retest 10540 and the intermediate descending trendline of the current “Expanding Wedge” now at 10700.

On the flipside, a break below 10230 is likely to validate the bearish case to open up scope for a medium-term decline towards the next support at 9760.

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