dax daily outlook fri 27 may 2016 potential pull back towards 1017510080 support before another uple

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has continued to inch higher to print a high of 10298 before the close of the U.S. session which in line with our short-term expectation where the Index is undergoing an extension of the corrective rally in place since 12 February 2016 low. 

Today there will be no major Germany or EMU economic data releases or events and key focus will be on preliminary second release of U.S. Q1 GPP  @ 1230 GMT (where the first release printed a growth of 0.5% annualized) and market consensus is revised upwards to 0.9%. In addition, Fed Chairwoman, Yellen will be speaking later @1715GMT. After several rounds of upbeat speeches on the current economic situation and raising the bar for a  potential June policy interest rate hike by her FOMC’s colleagues, it will be important to see whether Yellen sing to the “same tune”.

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

Key elements

• The hourly (short-term) RSI oscillator has flashed a prior bearish divergence signal and broke below its former ascending trendline support. It still has room for further potential downside before reaching its oversold region. These observations suggest that the prior upside momentum seen in price action has been damaged and the Index now sees the risk of a short-term pull-back in price action (see hourly chart).
• The intermediate short-term support rests at 10175 which is defined by the minor swing low area of 26 May 2016 @2pm and the 23.6% Fibonacci retracement of the recent sharp rally from 24 May 2016 low to the current intraday high of 10319.
• The significant short-term support remains at 10080 which is the former swing high areas of 17 to 30 March 2016 and now close to the 38.2% Fibonacci retracement of the recent sharp rally from 24 May 2016 low to the current intraday high of 10319.
• The significant short-term resistance remains at 10380 with is defined by the 1.618 Fibonacci projection of the up move from 06 May 2016 low of 9733 to 10 May 2016 high of 10111 projected from 24 May 2016 low.

Key levels (1 to 3 days)

Intermediate support: 10175

Pivot (key support): 10080

Resistances: 10380 & 10530

Next support: 9960

Conclusion

No change in our short-term bullish view except we do expect a potential pull-back first towards the intermediate support at 10175 with a maximum limit set at the daily short-term pivotal support of 10080 before another potential push up materialises to target 10380.

However, a break below 10080 is likely to invalidate the current sharp rally cycle to see a retracement towards the next support at 9960 (pull-back support of the minor “Symmetrical Triangle” bullish breakout + 61.8% Fibonacci retracement of the sharp rally from 24 May 2016 low to the current intraday high of 10319).

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