About a month ago the German DAX (DAX, EWG) was hanging on by a thread. It has broken a key technical level triggering a head-and-shoulders top.
Roll the calendar forward a month and things are looking a lot brighter. Perhaps, Angela has lost her hangover as well. But the move higher in the DAX may still be a masking a future downside reversal. And it could come soon.
The chart above shows a bearish Shark harmonic in the price action. Sharks have 2 Potential Reversal Zones (PRZ), based on retracement of the original leg from X to A. What triggers the reversal trade is a move back through that PRZ level to the downside. The DAX ended Tuesday at the first PRZ.
So a move lower Wednesday could trigger it. The first target would be a 38.2% retracement of the whole pattern, which would be 9375. A secondary target at 61.8% retracement of the pattern would look for a move down to 8985. Those would be significant moves. Interestingly, a reversal back higher at the second target would start to set up a large Inverse Head and Shoulders pattern. But that is getting ahead of the market.
For now, watch for a reversal for the lower targets. If not then look again at 10150 to see what happens.
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