#$^dax

After pausing briefly at its 2015 all-time highs, the German DAX has jumped to new highs.

Just 3 weeks ago, we noted the milestone, and challenge, facing Germany’s DAX stock index. A furious 4-month, 20% rally had brought the index precisely to the level of its 2015 all-time highs just south of 12.400. How would the index react? As we noted in that prior post, “a reasonable reaction would be for the DAX to pause or consolidate its recent gains for some time prior to attempting a breakout to new highs.” This “speed bump” scenario is exactly what has unfolded in the DAX, at least for a few weeks.

The index pulled back some 3.5% over the subsequent 2 weeks before finding some support at the 23.6% Fibonacci Retracement of its post-December blast, as well as its 50-day simple moving average. This past Monday, following an apparently benign outcome to the highly anticipated elections in France, the DAX shot up more than 3% off of that support. In the process, it hurdled the speed bump that was its former all-time high  -- in Dukes Of Hazzard fashion.

So is it past the speed bump and on to the Autobahn for German stocks? In theory, it should be, at least in the intermediate-term. In the immediate-term, the new high was not decisive enough to say definitively that the former all-time highs were taken out. Therefore, we could still see some more brief backing and filling before the DAX takes off. Like much of Europe, though, a new up-leg in the DAX does appear to be a good bet.

Like our charts and research? Get an All-Access pass to our complete macro market analysis, including tons of charts and ideas like this EVERY DAY, at our new site, The Lyons Share.

_____________

The rally in German stocks may take a breather as the DAX Index bumps into its all-time highs.

As we’ve mentioned many times recently, there has been a resurgence in the performance of international equity markets of late. And as we noted the other day, this includes even perpetual laggard, Europe. One of the key drivers in Europe’s solid run recently has been the performance of the region’s financial juggernaut, Germany. Since its launch point in early December, Germany’s key stock index, the DAX, is up some 20%. However, as with the challenges facing the broad STOXX Europe 600 Index that we mentioned in the recent post, the DAX may be facing an obstacle of it own.

Specifically, the DAX is bumping into its all-time highs set in 2015 around the 12,390 mark. Its high from earlier this week was 12,375.

So what should we expect from the DAX’s test of its all-time highs? We don’t like to forecast, but a reasonable reaction would be for the DAX to pause or consolidate its recent gains for some time prior to attempting a breakout to new highs. At least that would be the healthy thing for it to do.

We have pointed out numerous examples in the past where stocks or indices have attempted to break out above prior highs without as much as a speed bump along the way. Such breakouts with prices already extended more often than not result in failure as the exhausted market lacks the fuel to sustain the breakout. That is why even DAX bulls should be rooting for a bit of a pause, or digestion, of its rally, prior to attempting to break out. Such a process may set the stage for a more sustainable breakout to new highs.

There is enough to like about the DAX chart in the longer-term that should not be threatened by a short-term consolidation. That includes a potential huge inverse head-&-shoulders pattern from mid-2015 to mid-2016, as marked on the chart. Plus, a pause or slight retracement of the DAX’s post-2016 rally could well result in the addition of the “handle” to a potential “cup-&-handle” formation since the 2015 top.

We are getting a bit ahead of ourselves now as the DAX has only just returned to its former highs this week. With all of the potentially bullish scenarios that may unfold in the longer-run, it is the immediate-term challenge that is most relevant right now. As such, we would expect these former all-time highs to at least provide a speed bump in the ongoing DAX rally here, if not an all-out roadblock for the time being.

Like our charts and research? Get an All-Access pass to our complete macro market analysis, including tons of charts and ideas like this EVERY DAY, at our new site, The Lyons Share.

_____________

The key German DAX Index is bouncing between two important trendlines.

All global equity eyes were on the stock of Deutsche Bank (DB) this week as folks opined on the company’s fate -- and the effect therein on associated parties. We are bypassing the company as our Chart Of The Day as it has been sufficiently covered elsewhere (plus, we’ve been touching on the issue for months already). However, we are focusing on one byproduct (or victim) of DB’s roller coaster ride. The German stock market has been ebbing and flowing with each and every DB rumor this week. Interestingly, the German DAX has been doing so within the confines of 2 important trendlines, 1 long-term (Up) and 1 short-term (down).

Here’s a close-up of the current DAX situation.

As the charts show, the DAX is presently below the rising post-2011 Up trendline and above the declining post-2015 Down trendline. It actually touched both trendlines in Friday’s chaotic trading. We can expect the DAX to remain in this trendline “limbo” until it decides which direction it ultimately wants to go. And, although we have seen plenty of false breaks of late, when the index does break out in one direction or the other, we believe it may finally lead to a more substantial move this time.

________

More from Dana Lyons, JLFMI and My401kPro.

The German DAX scored a big technical breakout 2 weeks ago; it is now undergoing a critical test of that breakout level.

As U.S. equity-centric fund managers, our focus is not typically on international markets, except as it relates to our relative strength-based fund selection model. However, there are certain foreign markets that are obviously more significant than others in their influence on global equity movements. Additionally, there are certain junctures on a chart that are more important than others in determining the likely direction of prices. Put those two variables together and you have the makings of a highly meaningful chart that begs one’s attention. This combination also accounts for the 3rd Chart Of The Day and associated blog post in the past 8 weeks pertaining to the German DAX Stock Index.

Of course, the DAX is Germany’s main stock index and, outside of some of the broad, continent-wide indices, perhaps Europe’s most important as well. Given Germany’s status as Europe’s economic linchpin, the DAX is always on our radar as a key barometer of the health and direction of European equities. As such, the 3 recent ChOTD’s and posts (including today’s) are indicative of the significant developments of late in the German (and thus, Europe’s) equity market.

The first post came on June 29th as we suggested it was imperative that the DAX hold key, post-Brexit support that it was testing at the time (German Stocks Facing Must-Hold Level). Specifically, the support was in the form of the post-2009 Up trendline (on a log scale). The index was indeed able to hold the trendline, bottoming within 2 days of the post. Since that hold, the DAX has rallied as much as 17%.

About 3 weeks ago, the rally had led the DAX to another critical juncture, in our view. Specifically, it was the convergence of 2 key trendlines (on a linear scale this time): the post-2011 Up trendline and the post-2015 Down trendline (German Stocks At A Crossroads). We felt that the DAX’s reaction at that convergence would dictate the direction of the market for some time. Break above the trendlines, it was advantage bulls. Fail there and the bears would be in control. Well, after an initial week-long rejection, the DAX was able to break through that convergence of technical resistance -- and with authority, rallying 3.5% in a week.

However, after that 1-week push, the rally petered out and the index began to pull back. Fast forward to today and the DAX is now testing the level of that trendline convergence breakout.

A closer look:

This test bears the same implications as the last one. That is, holding above the breakout level of the trendline convergence would be bullish. Fail to hold and we have a likely false breakout, giving the advantage to the bears. Of course, the 2 trendlines are now diverging so it is possible that price falls below the Up trendline, yet holds the down trendline. We’ll call that scenario a draw.

At the moment, though, the 2 trendlines are still close enough together that a move above or below could happen easily and swiftly so keep your eye on the ball.

________

More from Dana Lyons, JLFMI and My401kPro.

The DAX Index (Germany) remains a big influence of stocks in the states. Below updates this key index and the unique pattern it has formed over the past 6-years and especially the past year.

CLICK HERE TO ENLARGE CHART ABOVE

The DAX remains inside of its 6-year rising channel, shaded in blue, with line (B) being key support. This support line was hit in February of this year and it held.

Over the past year, the DAX has created a series of lower highs, inside of falling channel (A), shaded in pink.

Support is support and resistance is resistance, until broken.

How the DAX handles resistance line (A) and support line (B), should have a big influence over the S&P and other indices in the states.

The DAX is hanging onto support by a thread, that the Risk On trade does NOT want to see break. If the DAX can break above falling resistance line, very sweet message for being long stocks. If support breaks, it would be the FIRST in 6-years and would suggest selling picks up in the states.

Keep a close eye on the DAX, as it should send really important messages to stocks in the states.

Germany's DAX index remains very important on the global stage. The DAX index remains inside of rising channel, that has been in play over the past 5-years. Last year the DAX hit the top of the rising channel at (1) and then it started heading lower.

CLICK HERE TO ENLARGE CHART ABOVE

The weakness in the DAX was followed by weakness in the S&P 500, over the next 9-months. The decline since April of last year by the DAX, took it down to rising channel support and a small bounce has taken place the past few weeks.

Now the DAX is testing falling resistance at (2). The DAX remains a leader and what it does at falling resistance, should have a big influence over the S&P 500 going forward. If the DAX breaks resistance at (2), one should expect to see the S&P move higher as well. If the DAX turns south and breaks dual rising support, S&P 500 could follow this movement as well.

The 9-month trend remains down in the DAX (lower highs and lower lows). Keep your eye on this leader, as it is testing key falling resistance. Should solid breakout take place, it could influence prices through early summer. This is an important test by leadership friends!!!

See more of our research and membership options at Kimble Charting Solutions. 

If one was to look around the world for a stock market that could impact the S&P 500 the most, which market would you look at?

For a couple of years, the Power of the Pattern has been sharing with our members that the DAX Index (Germany) was very important. Below looks at the DAX and why an important bull market test is in play.

CLICK HERE TO ENLARGE CHART ABOVE

Last year the DAX peaked the week of April the 10th and broke support very quickly. The S&P 500 on a weekly closing basis, peaked at 2,126 the week of 5/22/2015. and closed at the same weekly price again the week of 7/17/2015. The DAX sent an important topping message around 6-weeks ahead of time last year.

The DAX remains inside of a 5-year rising channel, shaded in blue above. The decline since last April, took the DAX down to test its 5-year rising channel and 38% Fibonacci retracement level of the 2009 lows/2015 highs the week of Feb 12th.

The 9,000 zone at this time should be viewed as "dual support."

If this leading index would happen to break dual support in the 9,000 zone, the next support zone comes into play around the 8,000 zone (around 10% below current prices).

We have been sharing with our members for the past couple of years that the DAX remains a quality leading indicator for the broad markets in the states. If the DAX does take out dual support in the 9,000 zone, odds increase sharply that it a 10% decline could take place quickly!

Support is support at this time! Be aware of what message this index could send to indices in the states if the 5-year bull trend would break!

If you would like to stay on top of these patterns on a daily and weekly basis, I would be deeply honored if you were on board as a member. Please friends, respect the importance of these channels, as the channels going into 2007, look very much like the channels we ALL are facing at this time!

CLICK HERE TO ENLARGE CHART ABOVE

Ryan Detrick, head of Statistical analysis for Kimble Charting Solutions and I were honored to be on a "Chart Art" panel this past week, at the Stocktoberfest meeting at Coronado Island.

The main thrust of our talk was this; Global markets have formed look alike patterns and support of 5-year rising channels remains in place!

Each of they key indices declined of late and "ALL" of them hit rising channel support and Fibonacci retracement levels, where "ALL" of them created bullish reversal patterns (bullish wicks) at these dual support levels.

We also discussed the chart below-

CLICK HERE TO ENLARGE CHART ABOVE

This chart highlighted that 10% corrections have taken place on average once every two years, since 1960.

Bottom line that we shared was; 10% corrections are pretty normal for the past 50-years and the 10% correction that took place of late, did not break 5-year rising channels any in other 6 key global indices above.