German DAX Shows Signs of Rebound at Key Support Zone: What's Next for the Index?
Fawad Razaqzada | Oct 25, 2023 14:35
The rebound in the DAX comes after the German benchmark stock index printed a doji candle on the daily time frame inside a major long-term support zone on Monday, around 14700 (see shaded blue area on the chart). This is where the index had found strong support and resistance in the past, while the 38.2% Fibonacci retracement level of the entire rally from October 2022 also comes into play here.
A doji candle is where the opening and closing levels are roughly the same, with wicks on one or both sides of the opening and closing levels. This pattern is usually an indication of indecision (with both the bulls and the bears appear reluctant to commit to a particular direction) and can often be found at the bottom or top of trends. Given that the index had fallen for 4 consecutive days ahead of Monday’s trading, it was looking quite oversold.
Source: TradingView.com
Therefore, the recovery so far this week can be attributed to an oversold bounce at support rather than anything fundamental, unless subsequent price action tells us otherwise.
So, it is quite possible we will see the return of the bears once some of the ‘oversold’ conditions are worked off. Look out for signs of reluctance from the bullish camp to commit despite this bullish-looking price action. If we don’t see a convincing move higher in the next two-three days from here, then that could be a sign that the bulls will be in trouble again.
The next level of potential resistance to watch is around 14945, which was previously support. The next potential resistance level above this is around 15130. The bulls will need to reclaim levels such as these before we can be more confident about this latest recovery attempt.
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