dax daily outlook fri 23 oct minor pull back above 10430 support before potential new rise 164337201

(Click to enlarge charts)

What happened yesterday

The Germany 30 Index (proxy for the DAX) has staged a tremendous rally beyond our expectation as it hit and pierced through the upside target of 10320/10380.

The European central bank, ECB’s press conference was the game changer as Mr Mario Draghi has signalled that the ECB is prepared to expand its current bond-buying programme (quantitative easing, QE) in the December meeting when they re-examine the economic landscape.

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

Key elements

• Yesterday’s price action has staged a bullish breakout above the 10380 neckline resistance of the “Double Bottom” chart formation and initial “deeper pull-back” scenario has been put on hold.
• The exit potential of the “Double Bottom” bullish breakout stands at 11220 which confluences closely with the trendline resistance linking the highs since 13 April 2015, 0.618 Fibonacci retracement from the multi-month steep down move from 13 April 2015 high to 29 September 2015, 1.618 Fibonacci projection from 29 September 2015 low to 12 October 2015 high projected from 14 October 2015 low.
• Based on the Elliot Wave principal, the bullish impulsive wave structure in place since 29 September 2015 low is likely to be undergoing at the moment at extended wave 5 of 1/. A typical extended 5^th wave target has a Fibonacci projection of 1.00 or 1.618 (as per aforementioned).
• The near-term resistance stands at 10830 which is the former swing lows region of 09 June, 16 June & 18 June 2015.
• The significant support to watch now will be at 10430 which confluences with the pull-back support of the two ascending channel bullish breakout and a Fibonacci retracement cluster from various degrees.
• The hourly (short-term) RSI is at extreme overbought level (the highest since the start of October 2015) where the Index is likely to see the risk of a minor pull-back after yesterday’s steep rally.

Key levels (1 to 3 days)

Pivot (key support): 10430

Resistance: 10830

Next support: 10175

Conclusion

The medium-term (1 to 3 weeks) “deeper pull-back scenario” has been put on hold. In the short-term, the Index is likely to see a minor pull-back first without breaking the 10430 daily (short-term) pivotal support before a push up to target 10830 in the first step.

However, failure to hold above the 10430 pivotal support is likely to damage the bullish tone to see a further slide towards the next support at 10175 (pull-back support as seen on the daily chart and the short-term ascending trendline, in dark blue in place since 15 October 2015 low @2am).

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