I think that we have a scenario in which it’s almost impossible to get long of the DAX.
The German DAX Index initially tried to rally Tuesday but saw plenty of sellers jump back in, just as we had seen on Monday. The EUR13,250 level is an area that continues to be important, as we have seen this market bounce from there, break down from there, and see multiple reactions.
If we turn around and break above the EUR13,500 level, then it’s possible that we could reach to the EUR13,750 level, which is where the 50-day EMA is sitting just above. The 50-day EMA is an indicator that a lot of people will pay close attention to, as the indicator is used in a lot of technical trading systems. Ultimately, this is a market that continues to fade rallies, and I think it’s likely that we will see plenty of sellers jump into this market and take advantage of the first signs of selling pressure and exhaustion.
On the downside, the EUR13,000 level would be an area of psychological support, and if it can break down below there is likely that we would see the EUR12,500 level targeted, as we had bounced from there previously. Because of this, if the market would break down below there, it would open up a “trapdoor effect” in the market and at that point, it’s hard to tell where we woudl end up.
Alternately, if we were to break above the 50-day EMA, then it’s possible that the market could go looking to reach the EUR14,000 level, possibly even the 200-day EMA which is currently sitting at the EUR14,500 level. It’s not till we break above that level that I think the trend could change, but even then I would be suspicious. After all, we need to know what central banks are going to do, as they look like they are all getting ready to tighten. If that’s going to be the case, then stocks will more likely than not pay the price. There are a lot of concerns about inflation and global slowdowns out there, so I think that we have a scenario in which it’s almost impossible to get long of the DAX, but I could say that about most other indices. Quite frankly, the risk appetite around the world continues to look anemic, and Germany is going to be no different, especially as energy becomes a concern.