Is Deutsche Bank's Shallow Correction Over?

 | Apr 19, 2017 | 9:24 AM EDT
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Deutsche Bank  (DB) has rolled over in recent weeks, making what is so far a shallow correction of the gains from late September to late January. Corrections and consolidations are a normal part of a stock's journey. The trick or challenge for the technical analyst is to try to determine how deep and how long a correction may last.

Just remember that old Wall Street saying, "Calling the market is easy. Getting it to answer is hard." Let's explore the latest charts and indicators to see what we might glean from the price action.

In this daily bar chart of DB, above, we can see that prices made a small and minor double top in late January and early March as prices stopped short of reaching $19. Prices fell below the flattening 50-day moving average line in March and the slope of this shorter moving average line turned bearish this month. DB remains above the rising 200-day moving average line but a close below $14.50 would break it.

The On-Balance-Volume (OBV) line rose with the price action after a low in late September. A rising OBV line tells us that buyers have become more aggressive with heavier volume being traded on days when the stock has closed higher. The OBV line has weakened in the past six weeks as some liquidation and maybe profit-taking has come into the market. The Moving Average Convergence Divergence (MACD) oscillator is in a bearish mode and has been since early March when it slipped below the zero line.

In this weekly chart of DB, above, we can see the bearish price action of the past three years. A buy and hold strategy would have been painful. DB is still above the rising 40-week moving average line but a test of this indicator could be seen in the next few weeks.

The weekly OBV line looks more neutral or less bearish than the daily chart. The weekly MACD oscillator crossed last month to a take profits sell signal (a sell signal from above the zero line).

In this Point and Figure chart, above, we can see that DB has already met its bearish downside price objective from the toppy price action above $18. It looks like chart support could materialize nearby toward $15 or so.

Bottom line: Because the selling or profit-taking of the past six weeks has not erased or given back the strong buying in October through January I look for DB to stabilize and trend sideways to higher in the next few weeks. Not knowing how long this next phase may last I would suggest that traders wait for a close above $17.50 before probing the long side or adding to existing longs.

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