The GER40 cash index managed to make a higher high on April 4, reaching the highest point since January 2022 and potentially kicking off a party at the bulls’ camp. However, the situation is more complicated than it appears. The failure, up to now, to hold above the upper lower boundary of the January-March 2023 rectangle could be a sign that the market is not mature enough to stabilize at these elevated levels. To be fair, the move higher since the March 20 low of 14,458 has been too vigorous, even from the bulls’ perspective.
Having said that, the bulls are trying to find their rhythm before attempting another charge higher. Unfortunately for them, both the Average Directional Movement Index (ADX) and stochastic oscillator are not joining their party at this stage. The former is slightly above its 25-threshold, but the overall impression is that there is not a clear trend in the market. Additionally, the stochastic is hovering at its overbought territory, where it can stay for a considerable amount of time. To add a twist in the current technical picture, the current set-up is pointing to a developing double top structure. However, a sizeable drop towards the March 20 low is necessary for the pattern to be seen as valid.
The bulls would clearly love to post another higher high, above the April 4 high of 15,739. This could encourage them to pursue higher targets with the next resistance level set at the August 13, 2021 high of 16,030.
On the other hand, the first target for the bears could come at the busy 15,271-15,340 area, populated by the January 17 high, the 78.6% Fibonacci retracement level of the November 19, 2011 – October 3, 2022 downtrend and the 50-day simple moving average (SMA). This is a key area for market sentiment and if successfully broken, the bears would aim for the 14,813-14,920, defined by multiple lows and the 100-day SMA.
To sum up, the bulls would love another break higher, but they need external support. The overall technical picture is not favourable at this juncture and a push lower could quickly reverse market sentiment.
