Below is the weekly chart of FXCM's DAX CFD, GER30. We have applied a triple moving average to get a sense of the longer-term trend of the index. The green shorter simple moving average (SMA) is below the intermediate orange SMA. In addition, the orange medium SMA is below the red longer-term SMA (green rectangle). This pattern is a bearish formation. We also note that the SMAs have angle and separation, suggesting an underlying downwards momentum.
The daily chart has a different tone to the weekly. Below we see that the green shorter SMA has crossed above the orange medium SMA (black ellipse). This action effectively took the daily out of its downtrend, as defined by the triple moving averages. Given the current positions of the SMAs, the daily chart exhibits a neutral reading. However, the daily quality will turn bullish if the SMAs position themselves where the green short is above the orange medium and the orange medium is above the red long.
Longer-term trends tend to dominate shorter-term trends. Therefore, caution should accompany the fact that the daily chart shows resilience. This vigilance is because the weekly triple moving averages are still in bear mode. I.e. we may be in the midst of a dangerous bear market rally. Bear market rallies cause the majority of the damage in bear markets. Therefore, the evolution of:
* the daily from neutral to bullish formation, and
* the weekly from bearish to neutral is needed to alleviate some of the concerns.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.