dax daily outlook wed 04 may 2016 risk of short term rebound above 9850 support 1809782016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has declined as expected and managed to hit our expected short-term downside target (support) at 9900 (printed a low of 9893 in today’s Asian session).

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

Today’s key economic data release for Germany/EMU zone as follow:

1)      Germany Markit Services PMI for Apr (consensus at 54.6) @0755 GMT

2)      Euro Zone Markit Services PMI for Apr (consensus at 53.2) @0800 GMT

Key elements

• Current price action of the Index has hit the 9900 support which is defined by a confluence of elements; the former minor swing high of 04 April 2016 and also a Fibonacci cluster (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) (see 4 hour & 1 hour charts).
• Based on the Elliot Wave Principal and fractal analysis, the Index is likely to have completed the bearish downleg wave iii of a minor degree at the 9900/9850 level and may start to see a corrective rebound, wave iv with potential end target at 10150/270 which is defined closely by the 50% Fibonacci retracement of down move from 28 April 2016 high to the current low of 9893.
• The aforementioned potential corrective rebound, wave iv target of 9900/9850 also confluences close with the graphical former minor swing low area of 28 April 2016 @4pm and the short-term descending trendline resistance from 21 April 2016 high.
• Short-term momentum indicators are also advocating a potential short-term rebound in price action. The 4 hour Stochastic oscillator has already reached an extreme oversold level coupled with an impending bullish divergence signal seen in the shorter-term (1 hour) Stochastic oscillator. These observations suggest that the downside momentum of the current down move is being overstretched.

Key levels (1 to 3 days)

Pivot (key support): 9850

Resistance: 10150/270

Next support: 9750/630

Conclusion

Short-term technical elements are now advocating for a potential mean reversion (snap-back rally) but bear in mind that there is not enough elements at this juncture to indicate that the medium-term bearish trend that started from 21 April 2016 is over.

As long as the daily short-term pivotal support at 9850 holds, the Index is likely to see a short-term rebound towards the 10150/270 resistance before the downside movement resumes.

On the other hand, a break below the 9850  short-term pivotal support is likely to invalidate the expected short-term snap-back rally to see a continuation of the downside movement to target the next support at 9750/630.

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