The German DAX traded higher on Monday, after it hit support near 15100 on Friday. That said, the recovery was stopped by the 15330 level, still below the downside resistance line taken from the high of November 19th. As long as the index continues to trade below that line, we would consider the short-term outlook to be negative.
However, in order to become more confident on a trend continuation, we would like to see a decisive dip below the key support zone between the 15030 and 15100 barriers, marked by the lows of Friday, and November 26th. Such a dip would confirm a forthcoming lower low on the 4-hour chart and may open the way towards the 14815 barrier, defined as a support by the low of October 6th. If that barrier doesn’t hold, then its break could carry larger bearish implications, perhaps setting the stage for declines towards the 14515 area, which provided decent support between March 22nd and 25th.
Shifting attention to our short-term oscillators, we see that the RSI turned down after it hit resistance at 50, while the MACD, although still above its trigger line, stays within its negative territory. Both indicators detect downside speed, but the fact that the MACD remains above its trigger line make us cautious over another potential bounce before the next leg south.
On the upside, we would like to see a decisive break back above 15515 before we start examining the bullish case. This may not only confirm the break above the aforementioned downside line, but also a forthcoming higher high on the 4-hour chart. The bulls may then get encouraged to push the action towards the 15745 barrier, marked by the inside swing low of November 24th, the break of which could extend the advance towards the 15965 zone, marked by the high of November 25th.
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