The DAX revisited

Recently I wrote about the DAX and how it looked like it was in trouble. Well it was, falling all the way down to nearly 6500 after breaking down from its 50day moving average. Two days ago it found support and then yesterday it had a monster day rallying over 2.5%.

This rally came a little earlier than I expected and should run a little higher to between the 50day moving average and 7000 in the near term, but I also expect it to fail when it gets there. On the chart below, if you look at the highlighted area back in November/December 2011 you can see a similar rally after its 50day moving average was breached to the downside...and a violent rally it was, just to fail in the previous congestion zone. That failure retraced more than 50% of its rally in the weeks following...expect a similar scenario to unfold in the weeks ahead. And watch the DAX for clues as to what may happen in the US markets after Europe closes.