DAX recovers after correction

Price at time of writing – 8417

It is over two months since my last update on the DAX, and it is time to check on its progress towards my long-term target of 8972.

To refresh ourselves, the price at the time of my last note, on 28 May 2013, was 8383.

In line with other global indices, Germany's DAX also corrected throughout the month of June, taking necessary steam out of the April/May rally that measured 15%. Overbought relative strength readings and market complacency usually go hand-in-hand, and a correction of either 6.25% or 8.33% is generally required to bring traders back to earth. In the case of the DAX, the recent correction extended to one of 10%. This correction, however, is just one of many we have seen along the road since the unique low of March 2009 and, as with all the others, it has been right to ignore this one too.

To be accurate, my target of 8972 is amid a cluster of percentage resistance with parameters that define a band 8942-9048, and comes courtesy of a line representing a 150% rise from the 2009 low-point. In practice, traders may wish to take profit at the lower end of this band, leaving any further upside to others. Holding the position with the aim of exiting at the top of this band is a high-risk approach. 

Recommendation: Stay long. Target  8972. Only a fall below 8000 would cause concern, and require a stop-loss to be applied.

DAX chart


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