The German index continues to see a bit of hesitancy at this point, as energy and the Middle East continue to cast a shadow over Europe. This remains a difficult market as internals almost don’t matter.
DAX
The DAX has been all over the place during the trading session on Tuesday as the market fell, then rallied, and then gave back those gains. It tested the crucial 50-day EMA and failed. Of course, we have a lot of questions to be asked when it comes to the DAX, as energy inflation could be a bit of a problem, as could energy supply itself.
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Energy Issues
The German economy, of course, is heavily influenced by exporters and industrials. With industrials perhaps facing higher input costs, you have to worry about whether or not the DAX can continue to rise. Despite the fact that the German government is likely to spend quite a bit on fiscal expenditure for infrastructure this year, this is a major problem.
This is something that is out of control not only for the industrial sector itself, but also for the German government. If oil and perhaps even natural gas do not make it to the European Union, Germany is in serious trouble.
If the market were to break down below the €25,250 level, then I'd be looking at the DAX to test the 200-day EMA near the €25,000 level. A rally from here could open up a move toward €26,000, which was previous support and is now resistance.
All things being equal, this is a market that I think, over time, will try to reassert the uptrend, but it needs some external help, which, quite frankly, it has absolutely no control over. This is a situation that remains very difficult for buyers to overcome the pessimistic tone.
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