DAX Forms A Head And Shoulders Pattern
Axiory | Jan 18, 2022 08:21AM ET
Uncertainty strikes back and hits the markets with another bearish movement. So far, trading in 2022 hasn’t been enjoyable. Markets can’t find a direction, movements are somewhat choppy, and it’s hard to talk about any robust and dominant trend.
Buyers prefer to stay away right now, giving more space to the bears. All this falls in line with a very handsome setup on DAX, which I’d like to present to you in this analysis.
The last three weeks on DAX allowed the price to create a Head and Shoulders pattern (green). I assume it’s less beautiful for buyers (as it promotes the downswing), but even they have to admit that the pattern is drawn technically.
The top of the head bounces off the all-time highs, and the neckline (yellow) is horizontal support which, at the first half of December, was a crucial horizontal resistance.
The bad news for buyers is that today we managed to break that support, which in theory gives us a proper sell signal. The potential target is the crucial long-term support of around 14900 points (orange).
In theory, we should suspect that the price will get there in the next few weeks. That sets a bearish tone, of course. From a technical point of view, that bearish signal could be canceled if the price comes back above the neckline or today’s breakout happens to be a false one.
There’s always a chance of that happening, so one should make sure that the bearish breakout is legitimate before making any decisions. Closing a day below the yellow support would help, but also, the following daily candle with lower lows and highs would confirm the breakout.
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