The DAX Index rallied a bit on Monday to show signs of life as the 200-day EMA has stepped back into the picture. The market has reached as high as 15,400 before slowing down, and I think it is likely that we will continue to see a lot of grinding back and forth in order to try to build up a certain amount of momentum to turn things around. After all, we had sold off quite drastically, so the question now is whether or not there are buyers down here willing to pick it up? As of this moment, it looks very likely that that is in fact the case.
The German index is chock-full of major industrial companies, which are indicative of the overall global economy. Furthermore though, you need to keep in mind that there are some mitigating circumstances in Germany, as they are talking about locking down the economy or locking out certain members of the economy. If that is going to be the case, that will work against the DAX itself.
As things stand, it appears that the 200-day EMA has offered support, as well as the 15,000 level underneath. The 15,000 level is a large, round, psychologically significant figure, but has already shown itself to be supportive regardless of the psychology attached to it. I do think that if we can break above the 15,400 level, the market is likely to go much higher, perhaps reaching towards the 16,000 level. That could be the way this plays out, as we get the so-called “Santa Claus rally” heading into the end of the year, something that a lot of traders are very well aware of, when other traders chase returns in order to meet their benchmark for the year.
To the downside, if we were to break down below the 14,800 level, then it could open up a flood of selling, as we would go much lower. That could be the next leg lower, opening up the possibility of a move down to the 14,000 level at the very least. That does not seem to be very likely at this point, but it is something that you need to keep in the back of your mind.