Schonen tag fellow Dax chancers. As it looks to me like we could be in for a slight shift in the direction of travel at some point soon (maybe this week) I thought I´d write up a quick summary of whats in my mind for the coming week. As many of you will know, I am not much into predicting longer term moves preferring the short term intraday scalp action that occurs on the Dax day in day out. There are others who are much better than me at this sort of stuff (Peter Reznicek at shadowtrader who tipped my thinking a few weeks back to the shape of the recovery in US markets, and Marc Chandler from @marcmakingsense being just 2 of note).
But I do like to have a bigger picture idea of where we are in the whole scheme of things on the Dax vis a vis US major indices and the higher time frame structure of the Dax chart as this can sometimes help to keep you on the right side of the market even for day trades.
With this in mind I always make sure I know how the US majors are trading, what the charts look like and what seems to be driving prices at the current time.
In terms of the US charts the thing that hits me is that the SPX and the NDX (the 2 that I watch most closely) are at decent resistance right now which may impact how we progress next week / the near term.
The NDX in particular is testing the upper edge of a channel and has been just about parabolic over the last week or so in getting there (see below).
At the same time the SPX is tagging the trend line from the ATH back in Feb after forming a 2 week range of sorts.
Of course in the changing global economy we live in right now there's no reason that the NDX which has largely been the main driver of index prices lately as a rotation to FANGMAN and tech stocks in general has led the move up across the board, cant simply continue its advance and make even higher levels.
But at some point reality bites and whatever the circumstances driving the push up, prices will stall and or correct to some degree - even if its just to catch a breath. It seems to me that since Covid struck, tech has ridden the wave of stock purchase rotation into it as it appears to be the least affected by the pandemic and offers the most potential for the future as consumer behaviour moves even further into the online space.
However, now might be a good time for a pullback given the structure of the charts and the shape of the past couple of weeks price action. On top of this there cant be anything other than nervousness (at the very least) about the rise in C-19 cases in the US and the impact on the ´reopening´ schedule. Moreover we have the election looming in the Fall but this might be a way off still re its impact on stocks. At some point however, the Biden Trump clash will start to rear its head.
If you also look at the Russell 2000 (RUT) chart we can see that prices have tipped downward although I don´t put much store by this right now. However, the small cap RUT tends to be the bellwether of main street America and sometimes gives you a clue as to the real health or otherwise of the US economy.
So, what might the US situation mean for the Dax? Well, if we look at the chart we can see it looks very similar to the SPX in relation to the trend line from ATH´s and the past 2/3 week balance.
We all know that range / balance / consolidation (whatever you call it) generally leads to breakout / expansion so it has to be part of your scenario analysis to consider that for all the indices noted, we are either going to get a test and break higher or a test and fail lower. Or we could just forget the test and go higher or lower :).
If we continue in bullish mode in the US I can see the Dax testing 12950 first and a continued push to / through 13k and above. If it tests higher and fails (or simply fails) we have 12400 and 12100 levels to watch out for (the rising trendline and the 200 DMA). Below that is less clear but decent support doesn't really kick in till 11200 / 300.
The point of the above is not that I'm trying to predict anything (or to suggest anything that's not clearly obvious to anyone who can read a chart) rather than to think through a few higher time frame scenarios in case we do get either a test and break up or a test and fail lower. It helps me to visualise what may happen and to inform my thinking in either scenario. For example in a practical day trading sense if i see either ídea´ playing out I might be more inclined to leave a runner trade on from one of the intraday scalps I will take to try and take advantage of the higher time frame price action.
I should also add that neither scenario could play out and we can simply continue to range at least in the SPX and the DAX. The NDX surely cant just continue going up ...... can it ??
Whatever happens I´ll be happy trading in the weeds and scalping intraday and not lose any sleep over the bigger moves. Its useful to do this type of analysis as a trader as it keeps you engaged and your mind sharp but I know the limits to my competence - I´m a scalper nothing more nothing less :)