Monday, March 30, 2015

DAX Context - 30/03/2015

The short term bull context from last week was proved to be right by today's price action. The index reached an ideal level for a wave B of (4). The fact that the an instrument reaches an ideal level doesn't mean that it should stop and reverse immediately. We have a very bullish period behind us and the bulls thought once again it was a buy the dip situation. As I was writing in the last couple of posts, I still anticipate that this rally should be a wave B. But this anticipation sure doesn't mean shorting the market right away. It only means that I should pay even closer attention for reversing signals. This is especially true during a wave B, because it can go up to a new high without voiding the wave count.

I'm gonna pay close attention to the parallel channel of the rally from last Thursday, because so far this channel looks like a corrective channel. The triangle in the middle has given us a good sign, especially after the test was completed, but the momentum on the 4 hours chart wasn't able to reach the sustainable bull zone yet.

4 hours chart with correction channels
The daily candle is a strong bullish candle and actually the market rallied from a pretty good place because it was a crossroads of the higher degree base channel, a bottom of a correction channel from ATH and the support of the MA10/20 channel.

Daily chart
So the momentum of the daily and above time frames - in my reading - is still bullish, while the 4 hours' is in the neutral zone, but the smaller time frames showed a small sign of reversal at the end of the day. The 1 hour chart is good example ofthat. But one little signal is not enough, especially if it is the last one of a trading day. I need to see 2 more things to start thinking about at least a correction: an impulsive break below the level of the preceding wave 4 and a pierce of the correction channel.
1 hour chart - last candle suggesting at least a small pause
Altogether I think it is early to trade long and aiming the ATH, but it is also to early to trade short for at least a correction of the rally from last Thursday. If the market will show the aforementioned signs of reversal, I still think it is going to be only a part of a correction: either a flat or a triangle pattern. The wave C of a flat could easily break last week's low, while a triangle must stay above that level and the wave C should terminate around the zone of 11800s.

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