The DAX has fallen a bit during the trading session on Wednesday as we continue to see a little bit of softness in the stock markets. The market was somewhat resilient in the sense that it did not continue the meltdown from the previous session, but it takes a lot of inertia to start selling off like that on the very next day.
When I look at this candlestick, it does not necessarily inspire confidence. In fact, I suspect it’s a situation where we have the potential for a continuation down to the €12,500 level. That doesn’t necessarily mean that we need to get there overnight, and quite frankly I do think that it will probably be a bit of a fight along the way. However, I do think also that there’s nothing good out there for stocks and it’s difficult to imagine a scenario where people would suddenly be bullish on Germany.
European Stagflation Hinders the DAX
- Because of this, every rally will be faded, because a lot of people who have gotten trapped in this most recent rise will be looking to get out at the best price possible.
- The massive engulfing candlestick that formed during the day on Tuesday is the kind of candlestick that almost never happens in a vacuum, and I think it leads to much lower pricing over the longer term.
- How long that takes I don’t know because the market works on its own time, but it’s obvious to me that something is very wrong with the DAX, as well as major stock indices around the world.
You must keep in mind that the European Union has a situation where they are fighting both a global slowdown and inflation, sometimes referred to as “stagflation.” This is very difficult for central banks to deal with, and therefore the ECB finds itself essentially stuck with a couple of difficult outcomes. Regardless, nothing good comes of this, and therefore I don’t have any interest in buying the DAX anytime soon, but I do recognize that the €12,500 level is a major area of support. If that were to be broken, look out below because the DAX would almost certainly start falling rapidly. On the upside, we would have to break above the 200-Day EMA to even begin to have a conversation about bullishness, and we are nowhere near that.
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