The German DAX has been in a very strong recovery for the last two months, significantly outperforming US indexes since the start of the year. However, there is a chance that DAX is now slowing down, as we can see five waves up within an extended black wave three, reaching the 23000 area, which is also a strong psychological level. So, it’s not a surprise to see some retracement in the near future.
However, the next retracement will most likely be just another wave four correction or a breather within the broader uptrend. So, after a healthy pullback, ideally in three waves, we will be looking for further upside on DAX.
A key support area on the next dip should be around 21800 to 22000, where we also see the 23.6% and 38.2% Fibonacci retracement levels. At the same time, we will observe the distance of wave 4 compared to wave 2, as corrections in extended impulsive structures tend to be similar in size.
If you are looking to join this uptrend, it may be a good idea to wait for this correction to unfold before considering new entries.
What I really wonder is whether the US stock market can push higher or break to the upside while DAX is pulling back. It will be interesting to see if the divergence between S&P 500 and DAX will continue or if both markets will align in the coming sessions.
Grega
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