The DAX initially gapped lower during the Monday open but turned around miraculously to wipe all of that out and end of the day in the green. In fact, it ended positive at about 4/10 of a percent, which is a rather unremarkable figure, and you take a look at the chart and see how much gain it took to get to that point.
At this point, I still think that the DAX is probably going to find some pretty significant selling pressure above, but it looks as if there might’ve been a little bit of value hunting during the day. Signs of exhaustion after rallying will be an excellent opportunity to get short again from what I can see, as the EU is in serious trouble and the German economy is not going to be spared. After all, modern economies demand a lot of energy, not necessarily something that we are going to see in Europe.
ECB’s Policy Favors Bears
- The ECB claims that it’s going to be raising interest rates, which is interesting considering that the EU economy is so fragile now.
- Inflation is out of control, so they may not have any other option but to try to tighten in this environment. Because of this, it’s difficult to imagine a scenario where the market can simply take off.
- The DAX should open a nice selling opportunity above, perhaps near the 13,200 level.
The candlestick on Friday was rather brutal, and that does suggest that there will be a bit of follow-through. Given enough time, the market will probably continue to look at this as a market that has plenty of negativity in it, and I think that will continue to be the main driver. If inflation continues to be an issue, stocks need to come down, not only in Germany but worldwide in general. The market will almost certainly try to get back down to the 12,500 level, where we had bounced from previously. If we break it down below there, then we could see a major continuation of negativity. All things being equal, I think if you are patient enough to look for selling opportunities, you should do quite well in this environment. If we wipe out the Friday candlestick and take out the top, then I might be convinced we can go further to the upside.
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