dax risk of a minor pull back below 10710 before new potential upleg 1825822016

Daily Outlook, Wednesday 10 August 2016

(Click to enlarge charts)

What happened earlier/yesterday

The Germany 30 Index (proxy for the DAX futures) has performed better than our expectation as it exploded to the upside and surpassed the intermediate resistance of 10530/650. Since the post Brexit low of 27 June 2016, we have warned in our earlier technical research articles that the DAX is due for a potential capitulation rather than a sell-off and the next likely move is a “melt-up” phase.

Yesterday, price movement of the DAX has reinforced our “melt-up” scenario for our strategic outlook in this Q3 as it staged the bullish breakout above the former significant descending range top at 10350 that has capped previous advances since 12 April 2015 high (current all-time high).

Please click on this link to recap our latest weekly technical outlook/strategy published earlier.

Key elements

• Based on the Elliot Wave Principal and fractal analysis, the current price movement of the DAX is just below a potential minor inflection level as the yesterday’s steep up move is likely to be an impulsive wave 3 of a minor degree with a projected end target of 10710 (slightly above the earlier predefined intermediate resistance of 10530/650). This implies that an imminent minor pull-back is likely to occur at this juncture to shape the corrective wave 4 of a minor degree with expected target set at 10530. Do note that the higher time frame structure remains positive, thus after the completion of the potential minor corrective wave 4, the Index is likely to resume its ascend to complete the primary degree bullish wave structure/cycle of (1) with its potential end target at 10990/11120.
• The aforementioned 10530 potential target of the impending minor degree corrective wave 4 also confluences with the steeper short-term ascending trendline support (depicted in dotted dark blue) (see 1 hour chart).
• The 1 hour (short-term) Stochastic oscillator is now coming close to an extreme overbought level which reinforces the risk of a minor pull-back in price action as per highlighted above.
• The next significant short-term resistance stands at 10870/990 which is defined by the intermediate-term swing high areas of 07/30 December 2015 and a Fibonacci cluster (see daily & 1 hour charts).
• The short-term pivotal support now rests at 10470 which is defined by the minor swing high areas of 01 August and 08 August 2016 and close to the 50% Fibonacci retracement of the rally seen from the low of the minor wave 2 at 10180 to yesterday high of 10703.

Key levels (1 to 3 days)

Intermediate support: 10530

Pivot (key support): 10470

Resistances: 10710 & 10870/990

Next support: 10350

Conclusion

Risk of a minor pull-back at this juncture.  Below the intermediate resistance of 10710, the Index may see a minor pull-back/consolidation first towards the intermediate support of 10530 with a maximum limit set at the 10470 daily short-term pivotal support. Thereafter, the Index is likely to shape another potential upleg to target the next resistance at 10870/990.

However, failure to hold above the 10470 short-term pivotal support may invalidate the preferred bullish tone for a further slide towards the 10350  pull-back support of the former long-term descending range top bullish breakout.

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