DAX Prints Reversal Signal

On Wednesday US tech stocks sold off, as a surge in bond yields weighed on sentiment. Investors dumped stocks with stretched valuations. The weakness has continued into Europe today and judging by the price action on the major indices, we could be heading towards some volatile times.

Among the major indices, the German DAX has provided its first major bearish sign. After hitting a new all-time high, the index closed below the opening price on Wednesday. This helped to created an inverted hammer off the all-time high and prior resistance around 14135 (see a shaded area on chart):

DAX Daily

Source: TradingCandles.com and TradingVew.com

The index has bounced off its lows, but now rallies into former support areas that could be sold into.

So keep an eye on the DAX as it could drop sharply from here, potentially providing lots of bearish trade setups in the process.

The index will need to form a key bullish reversal signal at lower levels for me to now turn bullish again, or rally to a new all-time high to nullify the bearish signal that has just been created.

The weakness in the stock markets could hurt sentiment in other markets. This is why I decided to close two trades ahead of their targets for the private group:

The first trade that previously I had a strong conviction on was the EUR/JPY. A few days ago it had bounced nicely off ST support at 128.20, as it continued to consolidate inside falling wedge on hourly. I thought that a breakout above this bullish continuation pattern could see rates climb towards 130.00 again and higher, as ECB QE purchases slowed last week despite concerns over rising yields. This is the chart I posted on twitter:

EUR/JPY

Source: TradingCandles.com and TradingVew.com

This is how the private group traded the EUR/JPY:

EUR/JPY hourly

Source: TradingCandles.com and TradingVew.com

But because of concerns over a stock market sell-off, I decided to close this ahead of the target, still providing a good +60 pips:

Image

Source: TradingCandles.com private Telegram group

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