DAX short recommendation triggered

Price at time of writing – 9007.

Last week I highlighted the fact that the German benchmark index had fulfilled my long-term target, a resistance band with its centre-stone at 8972. 

The DAX had therefore completed a 150% rise from the unique low formed in March 2009. I further suggested that aggressive traders – or investors wishing to hedge against long positions on other markets yet to fulfil their upside targets – should sell the index short at 9048. With an intraday high of 9070 recorded last Wednesday, this recommendation has now been triggered.

However, it is worth noting that the risk of overshooting this target band is higher than normal. This stems entirely from the fact that many other global indices are yet to achieve their own upside targets. For example, the short trade will face headwinds from rising markets in the US, UK, France, Austria, Spain and Ireland. Clearly, it is always more comforting to have major global indices in close correlation. On a more positive note, Germany's near neighbour and fellow eurozone stalwart, Belgium, has also seen its benchmark index achieve my upside target/resistance. Therefore, any underperformance by the DAX may have its origins in forces emanating from the Low Countries.

Today we take a first look at where initial downside targets may lie. Given the unfinished upside business in many other markets, I will not look for ambitious targets just yet.  A pull-back of 4.165% would take the DAX back to 8692 – plotting the route to an eventual ‘thirds’ rhythm decline – and should be used as the short-term trading target. We should bear in mind, however, that an eventual correction of 16.66% would return the index to the ‘triple-top’ and my former target at 7559.

Recommendation: sell short. Initial target 8692. Stop-losses can be triggered on momentum above 9200.

DAX chart

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