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Technical Update - Top and reversal patterns have formed in Eurostoxx 50 and DAX. Corrections likely
Kim Cramer Larsson
Technical Analyst, Saxo Bank Group
- Top and reversal patterns have formed in EuroStoxx50 and DAX, strongly suggesting impending corrections
- EuroStoxx50 could sell-off down to strong support at 4,976. EU50 CFD key support at 4,966
- DAX support at 17,900. GER40 CFD key support at 17,862
The EuroStoxx50 sell-off yesterday has formed a bearish engulfing top and reversal candle, taking out the previous three days of trading, which is a strong sign of a power shift from buyers to sellers.
Closing below its lower rising trendline gap support area at 5,007-4,976 is likely to be tested.A close below 4,976 can cause a larger sell-off down to around 4,886.
There has been a warning of a looming correction for a long time with divergence on RSI. Now, it seems very likely it is hitting.
For EuroStoxx50 to demolish this bearish scenario and resume an uptrend, a close above 5,122 is necessary
EU50 CFD closed below the rising trendline. Key support is at 4,966. A break below could lead to a sell-off down to around 4,849.
A close above Tuesday's peak at 5,121 is needed for the uptrend to resume and get extended.
A close above Tuesday's peak at 5,121 is needed for the uptrend to resume and get extended.
DAX formed an evening star top and reversal-like pattern. It is not perfect as the opening price on Tuesday was not below the body (not below the opening price) of the star candle on 28th March.
However, with the sell-off yesterday, the sellers have taken control and are likely to push the index to test its lower rising trendline.
A close below the lower rising trendline could push the index lower to test the key support at around 17,900.
It should be noted, however, that RSI is not showing divergence – it was canceled last week with a higher value - indicating higher levels after a correction could be seen.
That means the strewnght indicator on EuroStoxx50 is showing divergence, but not on DAX – which of the indices will be right remains to be seen, but caution in taking new longs is advisable.
To demolish this top and reversal picture and resume uptrend, DAX must close above 18,567
GER40 CFD is currently testing the lower rising trendline. A close below is likely to fuel a sell-off down to support at around 17,862.
To resume an uptrend, a close above yesterday's peak at 16,566 is needed.
To resume an uptrend, a close above yesterday's peak at 16,566 is needed.
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