- The DAX German index has rallied again during the trading session on Wednesday, gaining over 1% as the “risk on” trade continues to be invoked
- When you look at the longer-term chart, the downtrend line has offered a bit of resistance, with the €13,200 level offering a significant amount of resistance.
- If we do break above the trend line, then it’s likely that the market may go looking to the 200-Day EMA, which is currently right around the €13,600 region.
Beware of Bear Market Rallies
If we fall from here, and I do think that we will eventually, it’s very likely that we will try to get down to the 50-Day EMA, and then possibly even down to the €12,500 level. This is a market that’s been in a downtrend for quite some time, and even though we’ve had a nice rally over the last couple of weeks, the question now is whether or not the rally has any sustainability to it. That’s an interesting question, because a lot of traders are starting to stand there with their hands out, hoping that the central banks around the world will flood the markets with liquidity.
Quite frankly, these bear market rallies are vicious, but it’s likely that we see the market fall apart given enough time. After all, we are starting to show signs of exhaustion, but now when you look at the longer-term chart, you can see that we still have not actually broken market structure to the upside. Yes, there has been a very complex wave that has been formed over the last several weeks, but at the end of the day, we still haven’t changed everything.
Keep in mind that the European Union will have to worry about energy production and whether or not there is even going to be enough to heat homes this winter. The war rages in Ukraine and shows absolutely no signs of slowing down anytime soon, so I think we’ve got a situation where eventually you will get an opportunity to start selling, and I think a lot of the “hopium” in the stock markets could take a beating rather quickly. If you look back to the summer, we had seen a very similar rally that ended up being sold off quite drastically. Volatility is going to continue to be a major issue regardless.
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