DAX on shaky ground and could be due for breakdown

<p>The German DAX (daily chart shown below) ended lower on Thursday after Wednesday’s tumble from nearly a three-week high just above 10500. Since August’s precipitous […]</p>

The German DAX (daily chart shown below) ended lower on Thursday after Wednesday’s tumble from nearly a three-week high just above 10500. Since August’s precipitous dive saw the index drop a full 20% in less than three weeks down to a low in the 9300’s, the DAX has been in a choppy rebound mode.

Up to the noted 10500-area high on Wednesday, this rebound has retraced 50% of August’s plunge. Despite this rebound, the index has struggled to recover due in part to ongoing concerns over China’s economic growth and financial outlook.

In line with other major global indices, the DAX has lately been quick to fall and slow to recover as market fears have remained elevated largely as a result of these China concerns.

DAX Daily Chart

 

For the first time this year, the index’s 50-day moving average crossed below its 200-day moving average in the beginning of September, a bearish technical indication that could presage a change in trend momentum to the downside.

Furthermore, the DAX has formed what could be considered to resemble a large, inverted pennant or wedge pattern, where August’s plunge forms the pole of the pennant and the shaky rebound since late August forms the actual pennant consolidation.

In the event of a breakdown below the lower border of this pennant, bearish momentum could precipitate a return back down to the noted 9300-area lows of August. Projected further down, a drop below 9300 would confirm a continuation of the downtrend from April, potentially moving towards major downside support around 8500, which was last hit in October of last year.

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