The DAX is close to confirming a huge topping formation, says Frank Cappelleri, Chief Market Technician at Instinet.
Cappelleri says that if the DAX breaks below the neckline of a potential head-and-shoulders pattern on a closing weekly basis, it would complete a large top (see Chart 1). Not only would this be bearish for German equities, but it could also be a bad omen for US equities, with the S&P 500 also currently testing key support from its 200-day moving average and long-term trendline (see Chart 2). Cappelleri points out that in 2018 the S&P has tended to do its best (worst) when the world has rallied (faded) – see Chart 3.
As such, Cappelleri will be watching the DAX and the S&P closely and looking for significant bounces from, or breaks below, these levels.