Last week was a good one for the global indices. Maybe not so much for emerging markets, but the largest economies enjoyed the ride for sure. On the SP500 we bounced from the major upwards trend line and almost touched new all-time highs. In this analysis, we will focus on the DAX, which also made a bounce, the location of which was no coincidence.
The reversal that took place last week happened on the long-term neckline of the large head and shoulders pattern (red). If the price breaks that neckline it would be a major sell signal. This would actually be the start of a European bear market! Buyers managed to defend this line but the upswing stopped on a mid-term resistance created by the lows from June and July (orange).
As long as we stay below this line, the price will remain in no man’s land. A breakout here will give us a buy signal. Trading on Monday confirms this resistance and currently, we are experiencing a bounce. This may indicate a willingness for a drop and a second test of the neckline mentioned in the previous paragraph.
