Dax Index: Rising Wedge Spells Trouble for Bulls

Summary:

Dax index rising wedge spells trouble for bulls. Contrarian traders expect the market to reverse sharply once the rising trendline is broken.

Dax index remains well bid while the price action sits inside the trendlines of a rising wedge pattern. However, the market participants eye a breakout, with the path of least resistance being the downside.

Last week’s ECB meeting failed to bring clarity in the euro markets. The central bank insisted that it increased its asset purchases and that it was difficult to notice because of the redemptions effect. However, the market was not convinced and sent the EURUSD exchange rate back above 1.21. The strong currency weighs on the Dax, and we should see more weakness the higher the EURUSD goes.

The Dax index reveals the effect of the COVID-19 vaccines on the stock market. Since last November, when vaccines were announced, investors have piled into the stock market, sending the major indices to record highs. Now that the vaccination campaigns got traction throughout the developed world, we may see the opposite.

Dax Index Technical Analysis

Bulls may want to remain on the long side as long as the price action keeps forming new higher highs. However, contrarian traders may take the other side of the trade, on a break below the lower trendline of the rising wedge. On such a move, traders may want to have a stop at the highs and a target that exceeds 1:3 risk-reward ratio.