Saturday, February 11, 2012

Dax technicals 10.2.2012

Overbought condition easening

Dax dropped from the ceiling of 20 day price channel. Usually this has meant at least testing of a 20 day moving average which lies below 6600 near rising trend line. If Dax breaks down below the rising trend line and 20 day moving average, it would add the probabilities to test the bottom of price channel near 6200.

Now we have 3 stocks with 20 day performance negative.

The amount of overperforming stocks have been increasing. Usually this hasn't been a good sign (in despite of the latest performance which has been exceptional).

Clearly we can see that investors have interest to reduce the beta (one month beta) of their portfolios. The latest developement has been risk averse and could signal further drop in the prices.

TRIN was negative, thus revealing that declining stocks got bigger part of the trading volume. 

Volume Accumulation/Distribution dropped below -500, which revealed heavier than average selling.

Dax volume index seems to be reacting stronger on the downside than the price index.

Backtesting results from the history data reveals, that if TRIN is negative, Volume A/D below -500 and Volume Index decreasing, there is 37% probability for a positive next day. Adding that the condition has been extremely overbought, this drop in prices would easen the situation and make it healthier. Anyway, we need to watch the situation carefully, if the Dax decides to drop below 6600 and signal a drop below 6200.