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Looks like a top formation has completed in DAX. If you look at the time symmetry, it is also the time the DAX would change its character very soon. Could be tomorrow or early next week.
If a break out would happen, then it is likely to be a gap fill action.
ES has tested 2625 major resistance and a reaction is found.
It is retesting the broken resistance. If that level were to give away, then a top is confirmed and the longs are in danger.
If that test would be successful, it could go testing 2640 and 2660 levels.
The base case is not for ES to resume a bullish trend but to either starts a bearish rotation or to form a consolidation range above 2595 level.
Today and the next is the formation break out day according to my time symmetry calculation. The calculation starts when it broke down from the neckline, when it stands back above it, it completes a spring pattern. Usually, the structure left to the spring should be proportional to that of on the right of the spring. The DAX didn't make an obvious spring, but both EuStoxx50 and Cac has dipped below neckline on Monday hence we could use these two instruments to compute the time symmetry for the pattern formation.
In Eustoxx50, the structure left to the spring takes 4 days to form, and we are entering the fourth day after the spring. Therefore, today or tomorrow the formation is ripe for a break.
The break has been kicked off by a news catalyst which makes the break that stronger, which is to say don't fade the break out, just let it go to the upside to exhaust itself. Since we are looking at a break out of a nearly two week long consolidation, i don't see the European equities to turn around and start the bear trend after just a couple days of trading. I am going to wait for a topping pattern after the upside target being achieved.
As for an upside target, the Cac could as high as 4960.
It could does not mean that it is going to.
The most important piece of evidence is always a formation.
Last week's break out is not such a surprise from the technical stand of point, it has taken many by surprise as most of the traders, who are short term in nature, were positioning to the short side, and some of them were very short. When market is too short, the snap back can be very violent when a key pivot being taken out and all the short sellers scramble to cover their positions.
The key pivot level of 10900 has been taken out last Friday on the back of some positive news over US China trade talks, the short covering/squeeze rally hits the market with vengeance. I personally have been maintaining a bearish view, but was lucky enough to clear out all the bearish positions on Thursday as I have acknowledge the formation completion day is looming.
After the break, now the key question is how far the short covering rally is going to reach. By looking at the completed inverse head and shoulder's formation, the DAX can go as high as 11640 to reach its 100% fulfillment. By doing that, it would revert the down trend (at least technically) which has been in place since June of last year.
However, before reaching that 100% extension of the inverse head and shoulder's pattern, there is a big hurdle to cross which is the Monthly R1 level at 11315, which coincides with the 2018 Q4 Quarterly VPOC. Note that the 61.8 extension stands at 11380, which is not far away from that 11315 mark we have talked about.
Hence the 11315 to 11380 is the level I would be watching closely to monitor a good short setup in the next week. If DAX were to take out the key swing high at 11535, then I would be changing my directional bias according to that development.
Cac has been noticeably weaker than its European counterparts, like DAX, AEX. It might have something to do with its internal problems. Therefore, it is safer to express your bearish view on European indices in Cac instead of DAX.
I would reckon that the prior swing high of 4915 would be taken out fairly soon into next week. Then the 5000 would act as a heavy resistance. I would leaning my shorts against the monthly R1 as the base and invalidation point.
Bearish open in European stocks, but the first pullback is likely to be bought.
Two location where we likely to see buyers stepping in.
Due to the NY holiday, we don't expect a full on bull run today as most of the bullish strength spills over from the US equity market. Hence the base case for the day is a range bound consolidation day (with a bullish tilt) waiting for the lead from the US equity after Tuesday NY open.
