The DAX Index rallied significantly during the trading session on Friday to recapture the previous uptrend line that had been broken below. Furthermore, the candlestick closed that the very top of the range, which is a very good sign of strength as well. With that being the case, I think it is only a matter of time before the market goes looking towards the vital 15,800 level, an area that has served as a major topping region a couple of times in the past few months.
Looking at this chart, the market breaking above the 15,800 level opens up a possibility of a much bigger move, with an initial stop at the 16,000 level which is the next major round figure. Nonetheless, the way things are set up right now, it is very difficult to imagine a scenario in which you could be short of this market due to the reopening trade and the fact that Germany is so sensitive to the rest of the world, including the global growth pattern of industry.
Furthermore, the DAX is essentially the “blue-chip index” of the European Union, so it is one of the first places that people go looking to put money to work. Not only does it have the advantage of being the index that attracts so much in the way of industrial demand, but it also is considered to be a little bit of a safety trade, at least in the sense that the German economy is the biggest one in the European Union, and a main driver of growth.
If we break down below the 50-day EMA, it is possible that we may go down towards the 15,000 level, which is a large, round, psychologically significant figure. Breaking down below that level could kill the trend, but right now it certainly looks as if we will continue to see plenty of reasons to get long, so I have no interest in shorting this market anytime soon. The DAX ultimately should continue the overall uptrend, and it looks like breaking below that trendline was perhaps just sideways volatility more than anything else. As long as it is “risk on” around the world, the DAX will be one of the big winners.
