From a technical point of view, the European stock market rebound on Friday was a continuation of the move from late Thursday when the S&P 500 failed to sustain its break below the neckline of a Head and Shoulders pattern, which we had covered HERE on Wednesday.
The last time we looked at the DAX index was on May 6 (see “DAX: make or break time” for more). As it turned out, there was no break then but the corresponding bounce failed to materialise into a significant rally as it faltered ahead of prior resistance at 10100; now it is back to square one.
That being said, the lack of any significant follow-through in the selling pressure after the break out form the bullish channel shows the sellers have struggled to maintain control. Sensing this bearish weakness, the bulls may step in now and push the index decisively higher. On the upside, traders may first and foremost want to watch the first of the three bearish trend lines now, around the 10K mark. Above here, horizontal resistance and prior highs at 10100 come into play ahead of the 200-day moving average at 10145 next.
The above bullish scenario would become invalid in the short-term if support at 9745-9795 area breaks down first. If so, a move towards 9500 or the 61.8% Fibonacci retracement around 9375 area would then become likely.
DAX Daily Chart