This is why Brexit could be good news for German stocks

Traders sit at their desk at the Frankfurt Stock Exchange.
Thomas Lohnes | Getty Images
Traders sit at their desk at the Frankfurt Stock Exchange.

We normally focus on commodity, foreign exchange and Asia/US index charts but there are some chart patterns that are so compelling that they cannot be ignored. In many ways, this is an extension of last week's observations around the pattern seen in the oil chart. An opportunity can be found in every market, not just in the markets your look at regularly.

Germany's DAX shows two key charting features.The first is the long-term downtrend line. This starts with the peak near 12,390 in April 2015. The downtrend line is anchored with the highs in December 2015. The positioning of the line is confirmed with the peak and retreats in June 2016. It's a validly placed and effective trend line that defines the DAX downtrend.

It was broken in July 2016 with a clear move and close above the value of the downtrend line. The rally from this point has continued over the past four weeks. That in itself is a buy signal and bullish opportunity.

It is the second chart pattern that provides added interest and confirmation support for the breakout. This is the inverted head and shoulder pattern. The shoulders are shown as points A and C. The head is shown as point B. The neckline of the pattern is a segment of the downtrend line.

This is a strong trend reversal pattern. The depth of the pattern between the neckline and the head is measured and the value projected upwards. This gives a long term upside target near 13,100. This target projection doesn't tell how the breakout rally will develop and nor does it give an indication of when the target will be achieved. However, as a strategic analysis tool it is very bullish as these reversal patterns have a high probability of reaching their targets.

The initial breakout on the upside consolidation is the resistance around 11,400. Additional resistance is near the previous high at 12,390 simply because the old extreme highs provide a psychological pause point. Traders prepare for a fast move on any breakout. We use the ANTSSYS trade and analysis method to identify the opportunities as the breakout rally develops and use pullbacks to the newly defined uptrend line as a entry point.

Charting opportunity is where you find it so it pays to look widely for occurrences of profitable chart patterns.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

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