The DAX slowed down a bit during the trading session on Thursday, as we are near the €16,600 level. At this point, the market has been a little overextended for quite some time, but at this point in time it’s a situation where the market has ran with the idea that cheap money is coming. After all, the market will continue to pay attention to the idea of some type of monetary listening coming out of the CB, as Europeans are bracing for a recession. It’s a bit counterintuitive, but stock markets love the idea of poor economic performance, because it means that central banks will start throwing cheap money at people.
A pullback at this point is desperately needed, and quite frankly we could drop it down to the €16,000 level and still see the market as being overly bullish. This is beyond parabolic, and at this point, the DAX is a situation where you have to look at it through the prism of being overbought, and therefore you can either stay away from the market or start to short the market with smaller positions. I am not one who typically abdicates the idea of going against the grain, but clearly, we have an overdone setup.
Overdone? Well, yes
- The DAX has gone straight up in the air for quite some time, and therefore I think it’s probably only a matter of time before we see a little bit of reality come back into the market.
- While I don’t necessarily like the idea of going against the overall trend, I certainly would not be chasing it up here.
- I would anticipate that the market could try to get to the €17,000 level, but you are not buying at a reasonable price after this type of move.
I suspect that it is only a matter of time before we see a reset. That reset could be a nice buying opportunity, but at this point I think you need to be very patient to wait for applying long. Furthermore, I would also be very cautious about position sizing, even if you do get a pullback, because you can always add to a position that is working out. Expect a lot of volatility to say the least.
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