The German index has rallied a bit during the trading session on Tuesday to show significant momentum continuing to the upside. In fact, you can also make an argument that the 50 day EMA has also had its influence in the marketplace as well, as the German index has been widely supported by the reopening trade and the idea of German exports being used to open up industry around the world.
The Euro has been falling lately, so that of course makes sense as it also can lift the DAX due to the idea of making those German exports cheaper for the rest of the world. Because of this, Germany will more than likely continue to see money flowing into it, as the German economy is by far the leader of the European Union economy. Furthermore, as Germany goes, so goes the EU overall.
This brings me to my next point. Even if you are trading the DAX, if you are trading anything else equity related in the European Union, watch where the DAX goes as it can give you a bit of an idea as to where momentum is shifting. For example, if the DAX starts to fall and break through the 50 day EMA, it is very likely that other indices such as the CAC, MIB, IBEX, and so on will follow right along. Speaking of which, if we break down below that 50 day EMA, it is possible that we could go looking towards the 15,000 level rather quickly. At that point, we were to continue below 15,000, it is very likely that the market would go much lower, perhaps down to the 200 day EMA.
To the upside, if we can make a fresh, new high, then we will take out the 16,000 level, perhaps looking towards the 16,500 level next as the DAX tends to move in 500 point increments over the longer term. At this point though, I look at this as a “long only” index, meaning that I would either be a buyer on the breakout, or if we broke down significantly, I would be looking to short other European indices as they tend to play second fiddle to the DAX when it comes to monetary flow on the continent. Furthermore, pay attention to the Euro, because if it continues to lose strength, the DAX should do quite well.
