Is DAX Poised to Continue Drifting North?

The German DAX cash index traded higher on Thursday, after it hit support near the 12100 area. The rebound brought the index above 12200, to test levels last seen on October 5^th. The recovery continued today as well, but the bulls found resistance near the 12265 zone defined by the high of that day. On the 4-hour chart, we see that the index continues to print higher peaks and higher troughs above the upside support line drawn from the low of March 25^th and thus, we would consider the near-term picture to be positive.

A break above 12265 could encourage the bulls to drive the battle towards our next resistance hurdle at 12375, which is near the highs of October 1^st and 3^rd. If they are not willing to hit the brakes near that level, a move higher may pave the way to the 12460 zone, defined by the highs of September 21^st and 27^th. That said, before the next positive leg, we see the case for a corrective retreat, perhaps for the price to test the 12200 area as a support this time, or even the aforementioned upside support line.

Although the MACD is still above both its zero and trigger lines, the RSI has topped within its above-70 zone. This suggests that the upside momentum may start to ease somewhat and supports the notion for a small pullback before the next leg north.

On the downside, we would like to see a dip below 12100 before we start examining whether the bulls have abandoned the action, at least in the short run. Such a dip would bring DAX below the upside support line and may initially open the path towards the 12035 area, which provided resistance on April 4^th, 12^th and 15^th. If the slide does not end there, we could see extensions towards the 11965 area, the break of which may set the stage for the low of April 12^th, at around 11880.

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