It looks to me as if people are anticipating that the market is going to continue to fall due to a lack of demand.
The German DAX index initially tried to rally on Monday, but the EUR13,400 level has caused enough trouble to turn things around and bring in fresh selling. At this point, the market looks as if it is trying to reach the EUR13,000 level again, as that has been an area of support. We have been sliding lower overall, and it’s clear that the German equity markets are going to continue to see sellers every time they rally.
The EUR13,500 level seems to be a bit of a barrier, right along with the EUR13,750 level. Just above there, the 50-day EMA comes into the picture and is sloping much lower. Ultimately, we are in a downtrend in the fact that we failed to break above this previous support level, which shows that there is plenty of “market memory” in this vicinity. The shape of the candlestick is a shooting star, and that does suggest that perhaps there is a certain amount of exhaustion already.
I do believe that it is only a matter of time before equities continue to sell off, but they have been oversold globally. Short-term rallies are possible, but I look at those as selling opportunities, unless the central banks around the world change their monetary policy, something that does not look very likely to happen. Inflation is raging across the planet, and there are a lot of people out there that are concerned about a slowdown globally. Remember that the DAX is full of major companies that export across the world. Because of this, other economies do have an effect on the DAX, as we are so interconnected. It looks to me as if people are anticipating that the market is going to continue to fall due to a lack of demand.
At this point, central banks around the world will continue to tighten monetary policy, thereby causing the markets to price in a slowdown in demand. That is the base case scenario now, so it would not be surprising at all to see this market reach the lows near the EUR12,500 level. Breaking down below there opens up the floodgates to the downside. If we were to rally, and are not sure yet where the trend changes, we will have to approach that as we get there.