October 2021 started, what next

I used to make charting blogs every weekend for a long time, but now there is simply no time for that, since blogs with ten or more charts take several hours to make. Out of my weekends.


However, this Sunday is a good time for one, since 3rd quarter is over, and we can take a look at monthly charts as well.


As written many times in MORNING NOTES - SEASONALITY: September is the most bearish month for US markets, and was bearish 8 out of last 10 years.


On September last year, SPX lost 10.5%; Nasdaq 100 lost 14% and German DAX lost 15% (on Futures, -16%).


This was the warning for DAX, given with M. NOTES on September 2nd:

Lower highs, tails, inability to go over the ATH, failed break over the trendline / triangle.

All that SELLERS need, staring with the lower highs.


So, opposite to situation NOW, when the price is near the bottom end of the bigger ~15k - ~16k range - now BUYERS need a higher low, and to HOLD that higher low.


FDAX Daily chart with DMA50/200 and key levels:


On this chart, we can also observe "the DAX special" -> how DAX makes swing lows as springs below prior lows. That was the case on Friday as well.


But the question now is: IS FRIDAY LOW A SWING LOW? We could get more ranging, between 15k and 15,700 - since when the market is between DMA200 and DMA50 like now, it could spend some time between these two widely used moving averages. Since we are looking at the Daily chart, that means DAYS to spend there, in case of Neutral scenario.


There can be many variations what could happen in October. Let's name a few:

  1. Bullish v1: Buyers forming a higher low on Monday, and pushing higher, no looking back. Two days later, they are at DMA50. (There we can make sub-variations, with more ranging; OR shallow retrace from 15700 and up toward ATH...)

  2. Bullish v2: Dip to next S level, which is 14800 - making a spring below (bear trap) and swift move higher, back to 15700 in a few days

  3. Neutral: Entire October between 15k and 15700, making false breaks at edges of the range, slower tempo and fading

  4. Bearish: Dip to 14800; weak bounce, rolling down and moving lower to 14400 and to 14200 - where the untested breakout from March is. BUYERS expected to defend there.


Let's observe the September 2020 on Futures:



Drop from Sep 2020 to Oct 2020 was as written above, -15% on Cash and -16% on Futures.


Low from October 2020 was right at LTF Support level, AND as 38.2 fib retrace of the up swing. Now, WHAT IF - DAX makes another 38.2 fib retrace, of the next up swing?


There we have interesting situation, inline with the possible bearish scenario:


Next up swing is October 2020 - September 2021; and 38.2 fib retrace is inline with the untested breakout from March 2021.


OK, so those were Bullish, Neutral and Bearish scenarios.


Traders can also ask: "Does every breakout need to be tested later?"

And the answer is NO. However. majority of them get tested, some day in the future, but not all of them. Same goes for gaps. There are still many gaps "down below", untested, and many will remain untested.


My favorite example is the breakout from the 4-month range, that happened on December 6th 2016. It was very powerful breakaway gap and go breakout, and it was tested EXACTLY 2 years later. Tested, and gap filled at Dec 6th 2018.


DAX CASH INDEX DAILY of that period:


I am showing you this, because as traders we need to have an open mind, and to know what are the inflection points, so we can adjust our potential bias and expectations.


As always when trading DAX, we need to have "market awareness" of what is going on with other markets, primarily with the SPX.


SPX Daily:




Similar like on DAX - Friday low is a spring below previous swing low.

Upside inflection points are last Wed/Thu highs - since sellers can be squeezed above that.


Monthly FUTURES charts now:



Again, SEASONALITY + upper end of two channels.

Green one is 10 years old, and the bigger one is 12 years old.


Next one is FDAX Monthly


I am showing this chart since April. You have 20+ years on this chart, and the channel is 14 years old.


Markets can spend MONTHS grinding on the upper line, before a pullback - like we can observe on both of the chars above.


Daily, Weekly, Monthly charts... even though they are more important to swing traders than to day-traders, are important. Day-traders should get bias from Daily charts, or at least those charts should be helpful to determine where the risk is smaller.


For day-trading: CHECK THE SETUPS GALLERY.

Check the OPENING LEVEL for the last week. When market makes sharp moves, and volatility is higher, price can soon after the open stay below the opening level like on Monday, Tuesday and Thursday; OR above the opening level like on Friday. So, in 4 out of 5 days, opening level was very useful for us, acting as Resistance OR as an Support.


 

In short term trading it is very important to properly understand context heading into every day, to know from which side wind is blowing - who has the short term control, and which side will be forced to liquidate IF and WHEN market hold above or below a certain level. What is the level of volatility, what can we expect from any particular day, what market already done in premarket session, what possible setups can be available, and so on... the things that we constantly learn in the DAILY DOSE OF DAX.


Cheers, Relja a.k.a. StrayDog