DAX futures triggered low 1 sell

Market Overview: DAX 40 Futures

DAX futures triggered low 1 sell on the weekly but with a tail below so not as bearish as it could be. We had 2 consecutive daily big bear bars closing below their midpoints last week. Is it a pullback from a tight bull channel or a broad bear channel? It is likely we will continue in a tight trading range sideways to down until traders decide.

DAX 40 Futures

The Weekly DAX chart

• The DAX 40 Weekly candle was a bear bar triggering a low 1 sell at the 100-week MA and top of a broad bear channel.
• The bulls see the first pullback from a reversal up from the 200-week moving average and finding support above the pre-COVID highs at 14000. They see their longer-term trend intact
• The bears see an 8 bear-bar, tight bear channel breakout from a 12-month trading range and pullback to the bear channel line for a continuation down and possible second leg.
• It is a reasonable sell signal because we failed to close back in the trading range and have rejected the 100-week moving average for 4 weeks in a row.
• For the bears it’s a low 1 sell but it has a tail on the bottom so it’s not as bearish as it could be. They want a follow-through bear bar to confirm a possible second leg at least down to the March lows.
• Tails on the top and bottom mean traders are trading with limit orders and expect breakouts to fail and go sideways which is reasonable to expect next week.
• If you’re flat you can get short below a good bear bar or look to sell higher betting on sellers above.
• If you’re short you can look to add on once there is a reasonable bear close – but if you look left none of the bears did that until the sell climax.
• If you’re long you can look to get out below a bear bar next week and buy back lower above a bull bar and a likely double bottom.
• If you’re buying above, we need a weekly bull close above these tails which is maybe 40%. It is more reasonable the bulls buy lower for a second entry, possible double bottom anywhere around 14000, to move back up to the highs of the range.

The Daily DAX chart

• The DAX 40 on Friday was a doji bar closing below the 20-day MA.
• We traded lower than last week and Tuesday and Wednesday were consecutive bear bars closing below their midpoints.
• It is the second week in a row the bears got consecutive bear bars closing on their lows – is it always in short, or two legs sideways to down after a tight bull channel before resumption.
• The bulls see two legs sideways to down after 3 pushes up in a tight bull channel transitioning into a broad bull channel. They expect the pullback to be minor and will look to scale in lower with a high 2 near the moving average. We might get this next week.
• Thursday was the first moving average gap bar in 2 weeks so it is also a reasonable buy signal. But because Friday only touched but closed below the moving average, it might need to move lower to attract buyers. Likely sideways to down next week.
• The bears see the first pullback to the topside of the broad bear channel for a measured move down. Traders will expect 2 legs sideways to down after the wedge reversal, this might be considered the start of the longer 2^nd leg of the prior sell climax.
• Who is right? This is what happens in a trading range, reasonable buy and sell signals so it’s likely we will reverse until we get strong closes in either direction.
• If the bears can close below Wednesday and stay below the moving average then it is reasonable we are always in short, and a strong weekly close would continue the second leg down to at least the March lows. We might drop faster than Will Smith out of the Academy.
• If the bulls can breakout above Friday and trigger a high 1 buy, or buy below daily closes next week, it might convince bulls we can get back up with a second leg into the range above. Reasonably positive European war news might move Dax back up into the range.
• Because we have the underside of the prior trading range breakout as resistance it reasonable to buy below betting that 80% of breakouts fail.
• If you’re flat you can look to buy above the MA with a stop above Tuesday betting if we get there we are likely to move higher, it would be a high 1 on the weekly up there and a good buy signal.
• If you’re looking to buy you need consecutive good bull bars, but even then the context is tough because of all the reversals in this range. In a tight trading range you want to buy low, but it doesn’t look bullish until the top. If you scale in lower, you might need a very wide stop because the weekly could move down fast.

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