- The German DAX index initially rally during the trading session on Friday but has seen a huge amount of resistance near the 50-Day EMA, which consequently was just above the crucial €12,500 level.
- By turning around the way it has, this shows that the German stock market just is not ready to go higher.
- I think this is a situation where you have a lot of negativity out there willing to jump into the market at any given moment.
The Economy Situation in Europe Doesn't Help
Keep in mind that the European economy continues to suffer at the hands of a lack of energy and of course lack of growth. Also keep in mind that the DAX is full of major industrial corporations, and if they are going to have to cut back on energy this winter, that’s going to decimate profits. Because of this, we have a scenario where there’s nothing truly good coming out of the market, and you could probably even start to make an argument for the idea of a bearish flag being formed. It doesn’t necessarily mean that we have to go straight down, but I think that is going to continue to be the general direction.
If we were to turn on a break above the 50-Day EMA, that would obviously be a very bullish sign, but I don’t see that happening very easily. Keep in mind that the ECB finds itself with a major problem on its hands, because there is going to be a lack of economic growth this winter, but at the same time there is inflation. With the war in Ukraine raging on forever, it seems as if there is no real easy way out for the Euro, or the major industrial economies on the continent, including Germany.
A breakdown from here could open up a move down to the €12,000 level, which has a certain amount of psychological support built into it. Breaking down below there opens up the possibility of €11,750 being targeted. I think that more likely than not, we have a lot of downside to go, and therefore you need to look at this as a “fade the rally” type of situation as well as a simple selling situation on momentum to the downside. I have no scenario in which I'm willing to buy the DAX at the moment.
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