The Dax German index plunged drastically during the trading session on Monday, losing over 2.25%. The market is absorbing the idea that the Russians are going to shut down part of the Nordstream pipeline system, thereby punishing Europe yet again for a few days. This is extensively to do a bit of maintenance, but either way, it demonstrates acutely just how vulnerable the European Union is right now.
If natural gas starts to get cut off again, it’s likely that we would see the German economy get hit especially hard, because its manufacturing base is so crucial. Because of this, we have seen companies in Germany sell-off during the day, which makes perfect sense. Furthermore, we also have central bankers speaking at Jackson Hole this week and are likely to continue seeing the opportunity as a possible way to push the markets lower as the central banks around the world tightening monetary policy will work against stock markets.
The €13,000 level underneath is likely to be a bit of a floor but considering that we have fallen as hard as we have, it would not surprise me at all to see this market continue going lower. Underneath, the €12,500 level is an area that you need to pay close attention to, and of course, recognize that we have already formed a bit of a “double bottom” in that area. Breaking below that area would obviously set markets on fire, but right now that is still off in the distance.
Rallies at this point will have to deal with the 50 Day EMA, which is at the top of the candlestick for the Monday session. If we rally from there, then the €14,000 level should be paid close attention to, as it’s where we had pulled back from, and it’s just below the 200 Day EMA indicator, something that a lot of people will pay close attention to.
- I think it continues to be a “pay the rally” type of situation as Germany will continue to struggle through the prism of a European Union that is in trouble.
- The size of the candlestick for the day suggests that we must certainly have further downside ahead.
- We continue to expect that DAX to continue going lower over the next several sessions.
- Fading rallies will continue to be my trade strategy going forward.
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