dax weekly outlook for 03 aug to 07 aug bear trap further potential upside above 11200 support 95735

(Click to enlarge charts)

What happened earlier

The German 30 Index (proxy for the DAX) has pull-backed as expected below the predefined risk zone of 11890/11980.  It has whipsawed around the 11225 weekly pivotal support before staging a recovery of 3.9% from the 27 July 2015 low of 11026 to the current high.

Please click on this link for more details on our last weekly outlook.

Key elements

• Price action has managed to stage a “U-turn” from the pull-back support of the former descending channel bullish breakout despite having a close below it on 27 July 2015. This observation implies a “bear trap” which is considered as a significant positive technical element for the Index (see daily chart).
• The current recovery took place at the 27 July 2015 low of 11026 which corresponds closely with the 61.8% Fibonacci retracement (golden ratio) of the upmove from 08 July 2015 low @12pm to 20 July 2015 high @4pm (see 4 hour chart).
• The pull-back support of the former descending channel bullish breakout now stands at 11200 (see daily chart).
• The 11200 pull-back support also confluences with the lower boundary of a short-term ascending channel (in brown) in place since the 08 July 2015 low (see 4 hour chart).
• The intermediate term RSI oscillator remains bullish above its trendline support and 50% neutrality level which suggests that upside momentum remains intact (see daily chart).
• The next significant resistance stands at 12190 which is the upper boundary of the short-term ascending channel and the 1.00 Fibonacci projection from 08 July 2015 low @12 pm to 27 July 2015 low @8pm (this represent the minimum bullish wave 3/ target based on the Elliot Wave Principle) (see 4 hour chart).
• The short-term Stochastic oscillator has managed to bounce at the 53% level which is acting as a “floor” for the Index in the past two occasions on 08 July 2015 and 29 July 2015 respectively (see 4 hour chart).

Key levels (1 to 3 weeks)

Pivot (key support): 11200

Resistance: 11890/11980, 12190 & 12400

Next support: 11030 & 10650/10600

Conclusion

Technical elements remain positive and as long as the 11200 key pivotal support holds, the Index is likely to stage a further recovery to retest the 11890/11980 intermediate resistance before targeting 12190 with a maximum limit set at the 13 April 2015 swing high of 12400.

However, failure to hold above the 11200 pivotal support may jeopardise the multi-week bullish tone for a slide to test the 11030 support. Only a break below 11030 is likely to trigger a deeper decline to retest the key long-term support at 10650/10600.

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