DAX Rallies into Wedge Resistance as Breakout Potential Builds

German Dax Talking Points:

• Dax bulls gear up for a potential breakout but there are some big levels that need to be cleared first
• German Dax 40 heads its fourth consecutive week of gains. Can bullish momentum hold?

DAX Rips Higher as Bullish Breakout Potential Looms

Dax bulls have come back with vengeance after a steep decline that sent the major stock index to a low of 11829 earlier this month. As the German index aims to achieve its fourth consecutive week of gains, price action has returned to a key zone of technical resistance holding firm at around 13200.

Since reaching a fresh all-time high of 16295 in November last year, failure to retest that level back in Jan initiated a strong downtrend that currently remains intact. With lower highs making provision for a descending trendline, a bounce off support has allowed buyers to drive prices back towards what now holds as trendline resistance.

As highlighted on the weekly chart below, the zone between 12966 and 13115 (taken from two Fibonacci levels of historical moves) provided support throughout November of 2020 and in Feb this year has come back into play this week.

Meanwhile, the formation of a falling wedge illustrates the resilience of price action over recent weeks. Although buyers have been able to gain traction above 12000, bears appear to be running out of steam.

Dax Weekly Chart

Chart prepared by Tammy Da Costa using TradingView

For the short-term move, the big question is whether bulls can continue to gain traction. If prices can clear this key zone, a potential breakout could occur, driving prices back towards 13500.

Dax 40 Daily Chart

Chart prepared by Tammy Da Costa using TradingView

However, if the upside momentum fails to hold, a pullback towards 13000 and a break below 12847 could make way for bearish continuation with the next level of support coming in at around 12700.

— Written by Tammy Da Costa, Analyst for DailyFX.com

Contact and follow Tammy on Twitter: @Tams707