dax daily outlook thurs 05 may 2016 tolerate excess to 9800 for a potential short term rebound 18099

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has flirted with the predefined short-term pivotal support at 9850 (printed a low of 9805 in yesterday’s U.S. session) before it staged the expected push up.

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

Key elements

• Yesterday decline in price action has managed to stall at the lower boundary (support) of an ascending range channel from 11February 2016 low at 9800 (see 4 hour chart).
• The 9800 ascending range channel support also confluences with the Fibonacci cluster at 9850 (61.8% retracement of the recent up move from 08 April 2016 low @2am to last Friday, 21 April 2016 high of 10527 + 1.618 projection of the down move distance from 21 April 2016 high to 26 April 2016 low of 10209).
• The 4 hour Stochastic oscillator has flashed a bullish divergence signal at the oversold region and still has ample room for potential upside before reaching an extreme overbought level. These observations suggest that short-term upside momentum has resurfaced which reinforces the short-term rebound view on the Index.
• The significant short-term resistance zone now stands at 10026/80 which is defined by the former minor swing low area of 29 April 2016 @11pm and the 38.2%/50% of the recent decline from 28 April 2016 high to yesterday’s U.S. session low of 9805) just below the medium-term descending trendline resistance of 10026/80 from 21 April 2016 high (see 1 hour chart).

Key levels (1 to 3 days)

Pivot (key support): 9850/9800 (excess)

Resistance: 10026/80

Next support: 9630

Conclusion

We are maintaining our potential short-term mean reversion snap-back rally view and tolerate the excess of the short-term pivotal support to 9800 for a potential push up to target the 10026/80 resistance before another potential downleg materialises. But bear in mind that we are not expecting a significant recovery as there are not enough elements at this juncture to indicate that the medium-term bearish trend that started from 21 April 2016 is over.

However, a break below the 9800 (excess) short-term pivotal support is likely to invalidate the expected short-term push up scenario to see the continuation of the downside movement to target the next support at 9630 in the first step.

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