DAX 40 Weak Bear Bar Ends Bull Streak

Market Overview: DAX 40 Futures

DAX futures has been on a bull streak for the past 9 weeks, but it ended last week with a DAX 40 weak bear bar. The bulls want that to be the first leg of a major reversal. But high in a trading range, they probably won’t get it.

The bears shorted each top to the left-hand side, so they are looking to sell back down to get out. They want a smaller trading range or a wedge bull flag to start a deeper pullback.

DAX 40 Futures

The Weekly DAX chart

• The DAX 40 futures was a DAX 40 weak bear bar, closing above its midpoint and below the low of a prior bar.
• It was a pullback from a 10-bar bull micro channel, so traders were waiting to buy there. It is a bull streak, and they are uncommon, so they are likely to have a larger pullback.
• 10 bars are climactic, and they expected a reversal or pause here, and we might go sideways.
• The bulls see a tight bull channel breaking above prior highs and having open gaps. Probability is another leg up.
• But we are in a trading range, so it could be a bull leg and might suddenly disappoint traders making it more bullish than it seems at the top and more bearish at the bottom.
• Bears see a double top with June 6^th, high in a trading range where the maths favours selling. But it’s not a good sell signal. It will probably attract limit order bulls below and limit order bears above.
• A second entry short is a higher probability entry, but some bears will take a chance we need to get back to the moving average and will sell higher.
• We broke the bull trend line, so the price might search for a lower range or channel line. That could be good or bad. If we bounce here, bulls want to reach a measured move target above.
• But look left. The second bear bar was climactic in the past 5 cases – so a bad sell signal worked out. We might have some bears willing to trade this.
• Next week expect sideways to down, although Monday will attract some buyers who were scared of selling too high and need to scale in to protect their first entry.

The Daily DAX chart

• The DAX 40 futures was a bull bar on Friday with a small tail above. It is turning up at the moving average.
• The market has been in a tight bull channel since Oct 3^rd, and this is the fourth touch of the trend line.
• It is also more than 20 bars before touching the moving average, so it was a reasonable buy zone for the bulls.
• The bulls see a pullback to the low of a trading range for the past 20 bars.
• They see Nov 10^th as a measuring gap which would put the measured move at the bottom of the trading range above – visible on the weekly chart above.
• For the bulls, it is a High 2 buy setup at the moving average, which is a high probability buy. But after a 6-bar bear micro channel, there might be one more leg sideways to down before the trend resumes up.
• The bears want a breakout below a possible wedge, but none of the bear bars are that strong and all have big tails. Most bears will look to short above the high of the channel line or the most recent bear leg.
• The need to close the big gap below to convert it into a bigger trading range but currently looks sideways to up next week.
• Because it is a bull streak on a higher timeframe better to only look for buys.
• Better to be long or flat. Most pullbacks in small pullback bull trends become good with trend buy entries.

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