Technical Analysis - German DAX 30

As I mentioned at the open this morning the chances for a little bounce are very high but the bounce was very weak. The German DAX could close the gap but failed then at the 5600 level. In my opinion there is still no bottoming process in work and therefore my target around 5000 to 5200 is still intact.

Between today's close and my target zone is just one level which could support the stock index and that is 5340. Nevertheless my main scenario is DAX down to at least 5200. From there we could see a little bounce into the year-end before selling off really hard.

Why I am still very bearish? Take a look at the weekly chart of the DAX.

This chart shows the German DAX 30 on a weekly basis with the 50 week exponential moving average. There are some outstanding similarities on the chart. The selloff in 2008 was similar in intense and time compared to this year's selloff. The rebound in 2008 stopped right at the 50 week exponential moving average like in October 2011. Maybe we will see a small bounce into year-end but then I think we could see a plunge into mid 2012.

DAX 5500 - Market Analysis

The DAX reached 5500 points in the premarket. I think there is a good chance for a rebound towards 5750. At least the gap should get filled today. I still do not think that this is THE bottom. After a retest of 5750 I think we are heading lower. For sure we could fall to 5000 without any rebound and without closing the gap but in my opinion this is a very low probability scenario.

DAX Analysis

Today's action was very negative. The German DAX 30 closed at the lows of the day at 5606 on higher volume.
As long as the DAX 30 stays below 5800 there is a first downside target around 5000 to 5100.
What this action means in a bigger timeframe will be discussed in one of the following posts.
Nevertheless keep in mind that a close above 5800 would be a first indication that today's sell signal was a false break to the downside.

SMI (Swiss Market Index CH0009980894) and Nestlé (CH0038863350)

The SMI compared to other indices had a very weak recovery from the 2009 lows and since early 2010 the SMI could not make new highs. It also crashed much harder in August 2011 and nearly reached the 2009 lows. On the monthly chart you can see two big reversal candlesticks but nevertheless the recovery is still very weak compared to the foregoing selloff. A very important level of support/resistance on the monthly chart is the area between 5900 and 6000. Back in 2004 this area acted as resistance and in 2010 and 2011 as support! I want to see a monthly close above 6000 to get bullish.

On the weekly chart you can see slow recovery since August 2011. The SMI just managed to close the gap around 5750. You can also see on the weekly chart the importance of 6000 level in the SMI.

On the daily chart of the SMI I kept an eye on the bearish wedge which has been broken to the downside recently. During the next few weeks chances are high for a further decline. At least a retest of the starting point of the wedge should happen. So my target to the downside is 4700 as long as we stay below 6000 on a weekly basis.

The chart of Nestlé (CH0038863350) is more neutral. After a huge selloff in August Nestlé could recover back into the range from the last two years between 50 and 55. In the middle of this range Nestlé often found support or resistance around 52. That is right there where it closed today. So above 52.40 is room to 54.50 to 55 and otherwise a retest of 50 Francs is very possible.

DAX analysis

The DAX hold once again the very critical support area between 5750 and 5800. Nevertheless higher volume and bad intraday action in the last few hours could be a bad omen. Furthermore the S&P 500 broke below its support at 1226 (50 day moving average) and below the trendline I have shown in the last post.
The RSI of the DAX chart broke its uptrend on October 31st and a few trading days later the DAX itself broke its uptrend. Now the DAX successfully retested the broken trendline and should head lower. Moreover a shoulder-head-shoulder pattern could be formed on the daily chart if the DAX breaks below 5750.
A gap down tomorrow below 5750 and all bets are off. Then I would not expect any action like we saw on November 10th. If we close tomorrow below 5750 we would also have a bearish engulfing pattern on the weekly DAX chart.

The alternative scenario would be a daily close above 6125. Then we could see some kind of year-end-rally.

Still nothing has changed in the DAX 30 and S&P 500

The DAX is still in its range between 6120 and 5750. A break in either way would lead to a bigger move to the up- or downside. Below 5750 my first target is 5490 and then somewhere around the 5000 level. Above 6120 my target is 6400 and then 6600!
I think today or tomorrow a break will occur!

The S&P 500 just closed on a supporting trendline. Around 1226 is the 50 day moving average which could act as support too. At this point I have a bearish bias but I am looking forward to a breakout and that should be traded.

DAX market analysis

The German DAX is stuck in a range between 5750 (5700) and 6080 (6120). A close above that range would give us an upside target around 6400 and then 6600. A daily close below this range would end the DAX to 5500 and later down to 5000. So all in all we just have to wait for a break of this range...
Overall I am still very bearish on the stock market but until year-end I still think a rally could occur. 6600 would be a nice target, but not further than 7000. But do not get me wrong, if we close below 5700 I think a year-end rally would be quite difficult!

At this point intraday 5890 there is still no convincing upside reversal in place, so I think we have not seen the lows of the day.

DAX back to 6400?

The German DAX touched in October the 200 day exponential moving average and sold off hard afterwards. Since then the DAX stabilized between 5800 and 6200. Even tough it is still in this range I think a break to the upside is imminent. To me it does not look like a completed top! At least the 6400 area should be retested maybe in the upcoming week. I am expecting a weak start into the trading week ahead but until Thursday the DAX could rise to 6400. Above that 6600 seems to me like a reasonable level for the DAX to reach in the next few weeks. If we will get a very strong year-end rally the DAX can even rise to 6990 (former level of support). But that should be at least a medium term ceiling for the DAX. At this point I am expecting a huge sell-off in 2012 and I will post if anything changes in that forecast!
I know this is a bold call but I am risking it!

The SPY (ETF on the S&P 500) also consolidated after the recent highs. If the SPY gets up to the highs from October the DAX would be around 6400 and if the SPY would rise to 132 (the declining trendline) the DAX would rise to 6600! These are very key levels in my opinion. As long as 5750 in the DAX and 123 in the SPY hold as support there is no need for shorting the market in the intermediate timeframe!