At this point, I think you need to pay close attention to momentum and other indices as they all tend to move in the same direction over the longer term.
The German DAX index pulled back a bit Tuesday after initially trying to rally. The Tuesday session in the DAX has initially tried to break above the 50-day EMA but struggled to continue. At this point, the market is likely to continue to see a lot of back-and-forth action, but as we are at the top of the bearish channel, it’s likely that we would see sellers continue to cause issues.
It’s worth noting that the €14,000 level has offered a bit of support, and if we can break down below there, it’s likely that we would go looking to the €13,750 level next, possibly even the €13,000 level over the longer term. Keep in mind that the DAX is highly sensitive to the overall outlook for the European Union, and it is worth noting that something is less than rosy at this point. The ECB is talking about tightening, so it does make sense that we will see equities on the continent suffer.
If we break down below the bottom of the candlestick for the trading session on Tuesday, it’s likely that we will see a move to the downside. On the other hand, if we were to break above the €14,250 level, then it’s possible that the DAX may recover, perhaps reaching toward the 200-day EMA which is at the €14,750 level. Regardless, I think the one thing you can probably count on is a lot of volatility, so you need to be cautious with your position size. I think we are going to continue to have to pay close attention to statements coming out of the ECB, because if they start to sound more and more hawkish, then that will put more downward pressure on the DAX.
At this point, I think you need to pay close attention to momentum and other indices as they all tend to move in the same direction over the longer term. If other indices around the world start to fall, that will drag the DAX right along with it. The market has been grinding lower since the beginning of April, and it’s possible that we will continue to see a lot of this through the summer as the world tries to figure out supply chain issues, and of course inflation.