dax daily outlook thurs 07 jan 2016 short term bearish tone remains intact below 10116190 resistance

(Click to enlarge charts)

What happened earlier

In today’s Asian trading session, the Germany 30 Index (proxy for the DAX) has started to break below the key medium-term support zone of 10120/10050 due to the contagion effect from the rout seen in the China stock market.

Our preferred medium-term recovery scenario has been put on hold for now (please click on this link to recap our weekly outlook/strategy).

Key elements

• This morning session has lead the Index to break below the former swing low printed on 14 December 2015 low now turns pull-back resistance at 10116 (see daily chart).
• The longer-term bullish trend is still intact despite the recent sell-off. The next key support rests at 9800/9750 which is defined by the long-term trend line that links up the “higher lows” since 11 September 2011 low, 76.4% Fibonacci retracement of the recent upmove from 29 September 2015 low to 30 November 2015 high and the recent range support of 24 August 2015, “Black Monday” to 29 September 2015 (see daily chart)
• On the shorter-term, the Index is still evolving within a bearish descending channel with upper (resistance) and lower (support) boundaries at 10190 and 9890 respectively.
• The hourly (short-term) Stochastic oscillator has dipped into its extreme oversold level which highlights the risk of a rebound in price action of the Index.

Key levels (1 to 3 days)

Intermediate resistance: 10116

Pivot (key resistance): 10190

Support: 9890 & 9800/9750

Next resistance: 10400

Conclusion

Current short-term technical elements are still in favour for the bears. Any potential rebound is likely to be capped by the intermediate resistance at 10116 with a maximum limit set at the 10190 daily (short-term) pivotal resistance for another downleg to target 9890 in the first instance (lower boundary of the descending channel).

On the flipside, a clearance above the 10190 pivotal resistance is likely to negate the bearish tone for a squeeze up to retest the 05 January 2016 minor swing high at 10400.

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