dax daily outlook wed 03 feb 2016 final phase of mean reversion rally invalidated watch the 9600640

(Click to enlarge charts) What happened yesterday The Germany 30 Index (proxy for the DAX futures) has broken below the 9600 medium-term pivotal support in […]


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By :  ,  Financial Analyst

DAX (daily)_03 Feb 2016

DAX (1 hour)_03 Feb 2016

(Click to enlarge charts)

What happened yesterday

The Germany 30 Index (proxy for the DAX futures) has broken below the 9600 medium-term pivotal support in line with weakness seen in the U.S. stock indices and WTI oil. The final phase of the mean reversion rally has been invalided.

We have warned earlier in our latest weekly outlook published this Monday that the expected mean reversion rally is in its “final stages”. Latest price action from other major stock indices and WTI oil has changed the whole dynamic and risk aversion is backed in force. Market is fluid and we need to respect it; for now the upper hand remains with the bears.

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

Key elements

  • Since last Friday, the Index has failed to make any headwinds above the minor swing high of 19755 and created a whipsaw around the pull-back resistance (in dotted red) of the former long-term trendline support from the 18 September 2011 low before it staged a plunge yesterday. Bearish implications going forward (see daily chart).
  • Yesterday, the Index has broken below the short-term “Symmetrical Triangle” range now turns pull-back resistance at 9600/640
  • The next significant support rests at 9300 which is the 21 January 2016 swing low area that also confluences with the range support formed from the lows of “Black Monday”, 24 August and 28 September 2015.
  • The hourly (short-term) Stochastic oscillator has exited from the oversold region which suggests a potential relief rebound in price action of the Index at this juncture.

Key levels (1 to 3 days)

Pivot (key resistance): 9600/640

Support: 9300

Next resistances: 9810 & 9880/9935

Conclusion

Current technical elements and intermarket analysis have invalidated the final phase of the mean reversion rally scenario. Any potential rebound now is likely to be capped by the 9600/640 short-term pivotal resistance for another down leg towards the 21 January 2016 swing low area and range support of 9300 in the first instance.

Only a break above the 9600/640 pivotal resistance is likely to revive the mean reversion rally for the bulls to stage a potential recovery towards next resistances at 9810 follow by 9880/9935.

Disclaimer

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