The DAX fell rather hard on Thursday as we continue to see a lot of negativity. Stock markets around the world are trying to figure out whether or not inflation, and central bank policy, will continue to work against stocks. It’s kind of interesting to see how this is running concurrently around the world. The German index obviously is not going to be immune to global issues, especially as so many of the major constituents of the DAX are massive exporters.
Underneath, I do see a significant amount of support, especially near the 50-day EMA. If we can break it down below the 50-day EMA, it’s very likely that the DAX will go much lower. However, there is a lot of noise between here and there, and I don’t think it’s going to be easy. On the upside, the €14,700 level also features the 200-day EMA, so I think that’s going to be a formidable barrier to break above. In fact, if we can break above there, then it is likely that we will go much higher. That being said, we would need to see some type of good economic news, or perhaps the ECB threatening to throw even more liquidity into the system.
I think it’s much more likely that we break to the downside, but in the short term it looks like we are more likely than not willing to hang around and chop back and forth. Because of this, if you are a short-term trader you will more than likely continue to look at these two moving averages as barriers. Once we do break out of this area, it would make sense that we could go down to one of the blue circles that I have on the chart. I think that is the most likely scenario but I would also point out that there has been a significant amount of momentum, so I think what we will probably see is an attempt to get down to one of those. Whether or not we break to a fresh, new low is a completely different question, but in the short term, I think €13,500 would probably be a major accomplishment by the short-sellers.
