This is another Weekly Blog, covering DAX and SPX. Note that Earnings season has started for the US companies. DAX30 components companies will report later, starting from Jan 29th.
1. Scheduled data for the next week
Martin Luther King Day on Monday - expect LOWER LIQUIDITY; German ZEW Economic Sentiment on Tuesday, US President-Elect Biden will speak on Wednesday.
Most important days for DAX are Thursday and Friday.
Thursday with Monetary Policy Statement, Main Refinancing Rate and ECB Press Conference. Friday with FLASH Manufacturing and Services PMIs.
2. Charts and Thoughts
Let's start with the DAX Cash Daily chart
We didn't get the Trend Down Day on Friday, but we did get the liquidation break and a 300 pts down day. However, daily CLOSE is right around previous ATH level 13,795 (from Feb 2020) and this daily candle has the similar look like some prior ones labeled on the chart. Both of them had rejection tails and no downside follow-through.
Again, Johnny-come-lately buyers - the ones that bought above 13,900 - paid the price, and were squeezed.
Let's see the FDAX Daily chart now.
What was one of the scenarios on Friday happened, and here we can also observe some of the key levels, and position of the Daily 50.
Question is - was that IT? Meaning was that ALL of the downside, what we saw on Friday, and like last two times JUST a liquidation break without follow-through -> OR there could be some more? IF the answer is YES DAX goes down more, what are the downside targets THEN?
Let's go down to FDAX 240 min chart.
Last week, DAILY DOSE OF DAX had the zone around 14k as a BULL-BEAR zone. One of the scenarios was also a false break above 14k and down, and that happened on Thursday, continued on Friday. Now - 13,800 COULD be the next bull-bear zone. We shall see about that.
In any case, BUYERS need to push back above 13,870-900 and hold there, making the way back above 14k - which would squeeze sellers and make all of this just another bear trap.
SELLERS need to HOLD below 13,800 and make lower lows - and sooner, later than later.
First downside target is 13,550-620 area on Futures. Then ~13,460 and 13k...
Since DAX is not alone in the universe, and "market awareness" for us - DAX traders means to look at the SPX as well, let's do that...
Mighty SPX is still in the channel, after making a false break. Few unfilled gaps there as well. Downside targets would be bottom end of a trading channel - the one that was already tested TWO TIMES before. Note the position of the DMA50 as well, and that we didn't had the test of it for 2.5 months. Below that, there is the wider area of support around 3,600. Expect buyers there.
When we go down, and for that I will use my CFD chart on 60 min (voices from the background "oh noooo, CFD chart instead of Futures, yuck... ") there we can observe how market can use the same S/R zone MANY TIMES in the slow and ranging environment.
NINE entry points were there. Nine. And ONE break. Again - ONE break. That means - FADING this zone TEN times would yield you 9 winners and ONE loser, maybe two (#5 and poke below). Setups in ranging environment are FADES and FALSE breaks. On ANY market.
This is what Jim Dalton wrote about this range (balance), his chart is of course on Futures - #ES_F
Remember to NOT be "in love" with the single scenario, that we make scenarios to be prepared for the PA that market will give us, and that we need to execute on high odd setups.
Finishing this Blog with the quote:
"Trading comes down to MONETIZING setups, NOT predicting direction"
You have Setups Gallery for ENTIRE year of 2020 and now for January 2021 as well - up to Jan 15th. Use that to learn repetitive entries / setups, but also - and this will be a theme AS LONG AS IT TAKES (like Mario Draghi said once), for learning when and why to be AGGRESSIVE with trade management, and when and why to sit down, switch to higher time frames, and HOLD your trades without any micromanagement.
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