The decline on stocks is probably the most important recent event across financial markets. Some of the indices are resisting the decline, while others are leading it. Today, we’re going to talk about the DAX, which has beaten the lows from 2018 and 2017, so in my opinion; it belongs to the latter group of instruments.
DAX, the most important German index, made a choice last week and broke the neckline of the giant Head and Shoulders pattern. We could have finished our analysis here as that sorts out the situation and sends the bulls back home. Last week, the index broke the lower line of the wedge and the neckline (yellow), which is a very technical sign of bearish dominance. The distance between the top of the head and the yellow line is nearly 2,000 points, which means that we should expect a further drop of similar magnitude. This is just a theory, but in my opinion, in this case, it is very probable.
The sell signal will be denied when the price makes a comeback above the neckline, which for now looks less likely to happen. The rise that we’re seeing today is just a normal pullback and cannot be considered as a reversal, yet.