The recent drop in the indices has created some intriguing bearish setups, and one of the most promising appears on the German DAX. The DAX has been flirting with a key yellow resistance level formed by the highs from May. This resistance has proven effective as the price bounced off it, and we've seen a flurry of activity within this orange rectangle area over the past few days.
First, we observed a false breakout above the yellow resistance, followed by the appearance of a Hanging Man candlestick pattern on Monday, signaling potential exhaustion from the buyers. Yesterday, this was confirmed by a strong bearish candle with a long body, completing the bounce off the resistance and strengthening the sell signal. While today’s session started with some buying interest, with a hammer candlestick forming during the first half of the European session, the broader sentiment remains bearish as long as the price stays below the yellow resistance.
We should keep an eye on the U.S. market's reaction later today to see if the correction continues or if there’s a reversal. The setup suggests a potential for a larger decline, with a possible target at the black uptrend line. As long as the DAX remains under the yellow resistance, the outlook leans bearish.