- The DAX has pulled back just a bit during the training session on Monday as we continue to see a lot of noisy behavior.
- After all, we had initially shot much higher over the last couple weeks, and now it looks like we are trying to grind away some of that excess froth in order to bring in more buyers.
The 20-Day EMA is racing toward current pricing, but it still has some distance to go. Because of this, you have a scenario where most traders will look at this through the prism of trying to find value, and each dip will more likely than not be that value.
Technical Analysis
The technical analysis continues to be very bullish, but we are overdone. Because of this, you are looking for value every time it drops, especially if we can get somewhere near the 20-Day EMA. Even if we were to break down below there, I think it’s very likely that the 17,000 level is a floor in this market. Even if we get down to that area, there’s so much in the way of market memory that I think it’s going to be difficult to break down below it.
In general, the DAX will continue to be a major driver in Europe, and of course with the European markets trying to price in the German recession, it does make a certain amount of sense that they expect the European Central Bank flooding the market with liquidity, and therefore it’s the same dynamic that you see in New York and most of the US indices, as bad news tends to be good news because central banks have taught traders that they will come in and pick up the problem.
That being said, it is a market that is stretched, so therefore I think you got to look at it through that prism. We need to work off some of this froth, and I think that’s what the markets going right now. To be honest, the worst thing that we can see right now is the DAX simply taken off to the upside and being more aggressive as finding value is what most professional and institutional traders will be looking to do.
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