DAX/CAC Technical Highlights:
- DAX broke March 2020 trend-line but overall looks to be correcting
- CAC is hanging steady, triangulating towards the apex of a wedge
DAX and CAC Technical Outlook: Could be Steadying for a Rally
Last week, the DAX broke down with a fair amount of momentum and in the process it got some separation from the March 2020 trend-line. But as we’ve stated before, breaking a trend-line doesn’t mean the trend has changed, it simply means the trend may be changing.
With that said, since the breakdown took place last week we are seeing the DAX make a comeback, which is starting to have the price path since the August 13 take on the shape of a bull-flag. With a little more time this could lead the German benchmark back to new record highs.
If, however, the current recovery were to fail here soon, then we could be in for validation of the March 2020 trend-line break. If this is the case, then a trend change could indeed be in order and a larger set-back could be underway.
From a tactical standpoint, would-be longs may be best served sitting on the sidelines and seeing if a better-looking bull-flag can form before taking on long exposure. For those who think we are in the process of seeing a trend change, then this bounce may be an opportunity to establish bearish exposure. The thinking on this end, where bearish or bullish, is to be patient and wait for a little more price action to better clarity before taking action.
DAX Daily Chart
The CAC broke hard during the middle of last month, but since then it has been bobbling around and offering few directional cues. Overall, though, it is holding up relatively well given how hard the sell-off was. It’s not a great-looking wedge, but one has been forming over the past month.
This could lead to some resolution here soon. If the CAC can break above 6784, the upward trend may resume back towards the August high at 6913 and the 2000 record high at 6944. On the flip-side, a breakdown below 6605 would have the January trend-line in play along with the low of August at 6560. This would be an important spot for the market to hold if it is to remain neutral to bullish.
CAC Daily Chart
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—Written by Paul Robinson, Market Analyst
You can follow Paul on Twitter at @PaulRobinsonFX