dax ends july positive but downside risk remains 935362015

Although the DAX (daily chart shown below) showed signs this past week of a recovery attempt from the sharp plunge of the prior week, the German index lagged well behind the performance of its US and UK counterparts.

The nosedive that began last week found a tentative bottom early this week just above the 11000 psychological support level before rebounding modestly.

This drop briefly placed the DAX back down within the borders of a large descending trend channel that extended back to April’s all-time high of 12390. The channel was previously broken to the upside in mid-July, after which the index went on to hit a high around 11805 before making the noted plunge. That high of 11805 also happened to be around the 61.8% Fibonacci retracement of the recent 14% correction from April’s 12390 record high down to July’s low point around 10650.

Technically, the DAX continues to carry significant downside risk, especially if it remains trading under its 50-day moving average. Price action has currently formed a bear flag pattern that could push the index substantially lower if broken to the downside. Any breakdown below the noted 11000 support level could then target July’s low point around 10650. Below 10650, the next major support area is all the way down near the 10000 psychological support/resistance level.

To the upside, with any sustained trading back above the 50-day moving average, major resistance remains around the 11800 level.

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