DAX 6200...

In the DAX 30 there is a gap-support and trendline support at 6200.. From there I expect a recovery over the next few days. Especially with the ES down 16 points before the US market is open the downside should be limited.. Below 6190 the target would be around 6140!

SPY at resistance?!

The S&P 500 gapped up today and the action was very bullish until 3am. I don't want to beat around the bush: my sense is that we could have seen the/a top today!

First of all despite the general view a gap up is a sign of strength I see this gap as an exhaustion gap. After a huge move a gap usually indicates either that the bulls resign (gap-down) or that the bears resign!
Moreover some points are very similar to the action on July 7th.
1. After a big upward movement a gap.
2. Buyers control the market until the final hour of trading.
3. Profit-taking in the final hour.
4. Shooting star on a daily chart.
5. Compare the sentiment readings of the AAII survey. Last time the sentiment was similar to this week's was on July 7th.

S&P Breakout?

Today the S&P 500 finally closed above 1230. Is this a convincing breakout?

I don't think so..
Why? Just take a look at the German DAX:
October 13th 2010: DAX broke out of its trading range; S&P did not but followed some days later.
August 1st 2011 DAX closed below 7000 for a while and S&P was still in its trading range but broke down on the next day.
And now this trading range:
October 4th 2011: S&P broke to new lows while the DAX was 120 points away from its recent lows.
October 21st 2011: S&P broke to new highs while the DAX is 130 points away from a breakout (future 120 points)

Technical Analysis - DAX 30

After the break below 6990 the DAX sold off hard. Between 6300 and 6550 is very good support. Two gaps are still open which could be closed before a much bigger sell-off. Resistance on the way up is definitely 6990. Above that level the chances are pretty good to retest 7400. On the other hand below 6200 there is no bigger support level until 5800. With that high volatility we are talking about much bigger moves. I think it is a little bit scary that the DAX dropped nearly as much in three days as it gained between October 2010 and February 2011.

Nevertheless I think that the lows from today should hold for a few days at least. One reason is if you are counting the downward move from the highs of the year to the low in June as wave A, the bounce back up to 7523 as wave B and the decline since than as wave C, then wave C reached its 1.618 extension. Furthermore the S&P 500 touched its 38.2% retracement from last year's low to this year's high and formed a bullish hammer on high volume today.

Technical Analysis - DAX 30

The DAX closed on the lows of the day so not a very impressive action. Now the gap at 6961 is fully closed. I want to show you the arithmetic chart of the DAX on a daily basis since mid 2008. Since the lows of summer 2009 the DAX formed a nice upward trend. The index nearly reached that trendline which is just below the exponential and simple 200 day moving averages. Former declines during this uptrend always stopped at this trendline and around the 200 day moving averages. So watch out if the DAX breaks below the drawn trendline and afterwards below 6800.

Now I want to show you the chart on a closing basis. This chart shows that the XETRA DAX should not close below 6950. Sometimes the trendline on a closing basis are getting violated before trendlines in candlestick charts do. So this could be a good indication in what direction the DAX will head.

On the weekly chart you can see this trendchannel too but more important are the exponential and simple 50 week moving averages. They provided pretty good support in the past.

Last but not least a chart on a weekly closing basis of the DAX. Here you can see that the DAX should not close below 7145 on a weekly basis to keep the upward channel intact.