CityIndex

DAX: Bull flag breakout, or has the high been seen?

Short
CityIndex Broker Updated   
EUREX:FDAX1!   DAX FUTURES
The DAX is set to open lower, but there are two potential scenarios to monitor; a bullish breakout from a bull flag – or the swing high has already been seen around trend resistance.

The DAX has rallied from the September low in three waves, which could either be part of a new bullish trend or part of a 3-wave retracement. If we look at price action alone, the rally from 12,000 has been strong and a potential bull-flag is forming. Should we see prices break above 13,000 then we’ll assume the bullish trend is set to continue.

But there are two potential flies in the ointment which could scupper such a break higher. The rally has been seen on declining volumes, which suggests the ‘rally’ is corrective and not impulsive. Furthermore, the bull flag remains stuck beneath trend resistance. And given we recently saw a -bar reversal on the four-hour chart within the supposed bull flag , we are on guard for a break beneath yesterday’s low to assume bearish continuation.



Trade closed manually:
After another dip lower within the flag pattern, a bullish engulfing candle marked the low before prices broke above trend resistance. Whilst gains were a little slow to start, another bullish engulfing candle formed along the broken trendline to form a swing high and the trend finally took off.

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