dax daily outlook thurs 21 jan 2016 potential snap back rally in progress above 9400300 support 1794

(Click to enlarge charts)

What happened yesterday

The Germany 30 Index (proxy for the DAX) has tested and staged a rebound at the 9300 medium-term support in the U.S session as expected

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

Key elements

• The Germany 30 Index (proxy for the DAX) has staged a rebound at the 9300 medium-term support (lower neutrality zone as per highlighted in our latest weekly outlook/strategy). The 9300 support is defined by the range support area of the “Black Monday”, 24 August 2015 and 29 September 2015, Fibonacci cluster and the lower boundary of the descending channel (see daily chart).
• Interestingly, it has formed a daily bullish “Hammer” candlestick pattern at the 9300  support which indicates a change of sentiment from negative from positive.
• On the shorter-term (hourly chart), the Index has evolved into a “Descending Wedge” configuration (in dotted purple) in place since 13 January 2016 high. Yesterday, price action has hit the lower limit of the “Descending Wedge” which is at around the 9300 support.
• Based on the Elliot Wave Principal, a typical “Descending Wedge” configuration consists of five waves where it has completed these waves yesterday with the 5^th wave hitting a Fibonacci projection cluster zone of 9300/9262 before it staged the rebound in the U.S, session. This type of chart configuration usually precedes a mean reversion/”snap-back” in price action after a steep decline in place since 30 December 2015 high
• The short-term significant resistance now stands at 9780 which is the pull-back resistance (in dotted red) of the former long-term trendline support from September 2011 low  and the 23.6% Fibonacci retracement of the steep decline from 30 December 2015 high to yesterday’s low.

Key levels (1 to 3 days)

Intermediate support: 9400

Pivot (key support): 9300

Resistance: 9630 & 9780

Next support: 9070/45

Conclusion

After yesterday’s price action, we are now more confident of the potential mean reversion/snap-back rally for the Index. However, the overnight price action has appeared to be quite overextended as seen in the hourly Stochastic oscillator which has turned down from its overbought region and still has room for further downside before reaching the extreme oversold level.

Therefore, below 9630 intermediate resistance the Index is likely to see a pull-back towards the 9400 intermediate support before another up leg to target the next resistance at 9780.

On the other hand, a break below the 9300 pivotal support is likely to invalidate the mean reversion process for another waterfall slide towards the next support at 9070/45 in the first step.

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