dax daily outlook fri 05 feb 2016 in a precarious situation 1796212016

(Click to enlarge charts)

What happened earlier

As per warned in the our last daily outlook/strategy on the invalidation of the final phase of the mean reversion rally from the 21 January 2016 low, the Germany 30 Index (proxy for the DAX) futures) has reacted off nicely from the 9600/640 pull-back resistance and declined towards the short-term expected downside target at 9300.

Please click on this link for a recap on our previous daily outlook/strategy.

Key elements

• Yesterday’s price action has attempted to break below the significant range support at 9300 (the swing low areas of “Black Monday”, 24 August 2015 and 29 September 2015) before it staged a rebound during the U.S. session. The Index is now in a precarious situation; a break below 9300 is likely to have no room for ample “defence” as the next significant support rests at 8350 (see daily chart).
• The daily RSI oscillator is also not supportive for any “bottoming” scenario for the Index above 9300. The RSI continues to inch downwards and still has room for further potential downside before reaching its extreme oversold level. This observation suggests a built-up in downside momentum.
• In the shorter-term, the Index has continued to evolve within a bearish descending channel with the upper boundary (resistance) of the channel now coming close to 9480 which also confluences with 23.6% Fibonacci retracement of the whole down move from 28 January 2016 high to yesterday’s low at 9266.
• The next short-term supports to watch below 9300 are 9180 (now the lower boundary of the descending channel) follow by 9040. Both these supports (9180 & 9040) can also be found from the 76.4 Fibonacci projection and 1.00 Fiboancci projection of the down move from 28 January 2016 high to 03 February 2016 low projected from 04 February 2016 high @9618 respectively.

Key levels (1 to 3 days)

Pivot (key resistance): 9480

Support: 9300, 9180 & 9040

Next resistances: 9600/640 & 9880/9935

Conclusion

Technical elements are still bearish despite the Index has managed to hold above the 9300 support. As long as the 9480 short-term pivotal resistance is not surpassed, the Index is likely to see a further downside movement to target the next supports at 9180 before 9040.

On the flipside, a break above 9480 may negate the bearish tone to see a push up to retest the pull-back resistance of the former range at 9600/9640. Only a clear break above 9600/640 is likely to revive the bulls for a further rally towards the next resistance at 9880/9935.

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