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DAX 30, CAC 40 Technical Outlook Worsens with Support Under Siege

 The DAX is getting beat up to the tune of twenty-two at the time of this writing, with an outsized portion of the losses attributed to SAP losing nearly 20% of its value in today’s trade on earnings. This down-move within the index is putting significant support to the test.

In recent weeks we've been discussing the likelihood of a head-and-shoulders (H&S) pattern, and with a touch more weakness it'll have fully completed and validated it by having price fall flat the neckline.

The DAX is currently trading right round the neckline and just above the July low and 200-day moving average. A decline below both the neckline and therefore the 200-day at 12133 should have the DAX rolling downhill.

But to urge bearish momentum really cranked up, we'll likely need the leading U.S. stock exchange to roll over too before we get full risk-off in financial markets. the peak of the H&S formation implies the DAX could move to 11k, or worse.

Again, though, before getting too bearish we'd like to ascertain the neckline and 200-day break, otherwise we may even see it hold and still push the DAX further into a trading range. So while the H&S pattern is extremely near completion it isn’t a legitimate pattern until it triggers, a incontrovertible fact that gets lost on many when watching these patterns. Support is support until it isn’t.

The CAC outlook isn’t as clear because it is with the DAX, having been stuck during a range for several months. within the big picture it's certainly much weaker than many other major global markets because it has yet to return near the year highs made before the coronavirus knocked markets over.

The big level on the downside is simply under 4700. the extent dates back to the April high, where thereafter resistance then became support in June and September. Stay above and therefore the range continues, break below and it appears likely it might be following the DAX because it too likely breaks its own major level of support.