DAX 40 Big Bull Breakout: Measuring Gap or Exhaustion Gap?

Market Overview: DAX 40 Futures

DAX futures moved higher last week with a DAX 40 big bull breakout bar. It has been non-stop higher since October, and traders want to see if there are buyers above this trading range high. The bears knew they would not get a bear trend but hoped for a trading range. A test of the prior breakout point and reversal down would confirm that. Short-term targets up are the measured move above. Bears want a double top, or higher high major trend reversal but need a bear bar to sell.

DAX 40 Futures

The Weekly DAX chart

• The DAX 40 futures was a big bull breakout bar closing on its high so we might gap up next week.
• It is the strongest bar late in a trend, forcing traders to decide whether it is a measuring or exhaustion gap.
• Next week is important to see if there is a follow-through.
• The bulls see the start of the second leg. A break above a tight bull channel for a measured move. It is a High 1 / High 2 buy from just above the moving average, which is a reasonable buy signal.
• The bears see a higher high above a breakout point in a trading range. Trading ranges are confusing and often go above and below swing points, while traders bet on failed breakouts.
• So, either it will work or not. Bears selling here will sell higher at the measured move targets, betting the pullback will be deeper below the Dec 12^th high and they can scale in and make money.
• Bulls will buy the breakout follow-through and look to get out if the reversal has follow-through instead.
• Most swing bull traders should wait for a pair of consecutive bull bars closing on their highs before entering.
• Look left. March to June was a tight trading range, and we are trying to break above it. It is not unreasonable to expect some strong reversal here, like on Dec 12^th.
• Better to be long or flat. We are always in long. We might form a tight channel, wedge top around the prior trading range support line.

The Daily DAX chart

• The DAX 40 futures was a bull bar closing on its high on Friday, so we might gap up on Monday.
• Friday went below Thursday, so it was a pullback and a Low 1 sell signal, high in a trading range. So it is low probability and a reasonable opposite (buy) signal.
• We are breaking out above the Dec 12^th high, so traders are determining whether this is a measuring or an exhaustion gap.
• The bulls see a small pullback bull channel, pullback to the moving average and then a breakout for a second leg sideways to up.
• But this leg is stronger than the previous channel, so it might be climactic. A kind of second-leg trap. The bulls want to reach the measured move target above the 15000 Big Figure and the underside of the trading range above.
• The bears would see this as a breakout test of that range and have converted the bull trend into a trading range. They will look to sell reasonable reversals to swing back down into the lows of the range.
• But the bull trend/bull leg is strong. The bears failed to break 12000, and we have raced up since.
• We are always in long, and with consecutive big bull bars closing on their highs, bulls will also buy pullbacks as the spike converts into a channel.
• The bears want this to be a triple top with June and October, but they have failed to maintain control in many months.
• Expect sideways to up next week.
• Monday is important to see if we get follow-through above this range.

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