dax daily outlook fri 06 may 2016 looking vulnerable for a potential bearish breakdown below 9800 18

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has attempted to stage the short-term rebound above the 9800 short-term pivotal support but fell short of our expected target (resistance) at 10026/80 (just printed a high of 9922) before it traded sideways throughout the late European session.

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

Key elements

• The 9800 short-term support now appears to be vulnerable for a breakdown as yesterday’ price action has failed to sustain its initial bounce and remained below the minor swing high area of 04 May 2016 at 9950.
• The 4 hour Stochastic oscillator has started to inch downwards towards its oversold region which suggests that downside momentum of price action has resurfaced.
• Based on the Elliot Wave Principal and fractal analysis, yesterday’s price movement has reduced the probability of our preferred short-term mean reversion rally scenario. Right now, the Index has appeared to be undergoing an extending bearish downleg, wave iii of an impulsive bearish 5 wave structure of a minor degree in place since 21 April 2016 high as it continues to evolve within a steeper descending channel from the high of wave ii (see 1 hour chart).
• In addition, the potential end target of the extended downleg, wave iii stands at the 9620/530 zone which confluences with the minor swing low area of 12 April 2016 and a Fibonacci cluster (50% retracement of the 2 month+ old rally from 11 February 2016 low to 21 April 2016 high + 2.618 projection of the distance of the down move from 21 April 2016 high to 26 April 2016 low of 10209 + 1.618 projection of the distance of the  down move from 28 April 2016 high  to 30 April 2016 low of 10052).
• The upper boundary of the descending channel stands at 9870.

Key levels (1 to 3 days)

Intermediate resistance: 9870

Pivot (key resistance): 9950

Supports: 9800 & 9620/530

Next resistance: 10165

Conclusion

Even though, the Germany 30 Index (proxy for the DAX futures) is still holding above the 9800 short-term support but technical elements have started to turn negative and intermarket analysis are not supportive for the initial expected short-term mean reversion snap-back rally. In addition, the U.S. SP 500 Index (proxy for the S&P 500 futures) has broken below the 2054 short-term pivotal support.

We turn bearish and any potential minor rebound is likely to be capped by 9870 intermediate resistance with a maximum limit set at the 9950 daily short-term pivotal resistance for a further decline to target the next support at 9620/530.

Only a clearance above the 9950 short-term pivotal resistance is likely to invalidate the direct drop scenario for a push up towards the next resistance at 10165 (descending trendline from 21 April 2016).

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