- The DAX fell during early trading on Tuesday, as we continue to see a little bit of a pullback in Germany.
- This does make a significant amount of sense though, due to the fact that the market had gotten far ahead of itself. We are currently sitting just above the 23.6 Fibonacci level of the latest leg higher, suggesting that perhaps technical analysis following traders may be looking for a deeper correction.
- In that scenario, we could be looking at a move down to the 38.2% Fibonacci level, which currently sits near the €17,725 level.
Germany is The Bellwether
Germany is the bellwether when it comes to the European Union, so you should be watching this index regardless of what you are trading. This is because so many instruments will focus on Europe, be it indices like the CAC, MIB, AMX, etc., and of course you have to pay close attention to what it could do with the euro. We have an interest rate decision next week coming out of the European Central Bank, and perhaps some of this is to simply traders out there willing to take profit ahead of that massive decision.
A lot of traders will be waiting to see whether or not the ECB will do something to lift asset prices, as they would liquefy markets. If they do not, then it’s possible this market could fall deeper as Germany is already in the recession. That being said, expect a lot of noisy behavior over the next couple of days but I do suspect that the DAX remains a market that you are looking to buy dips in, as it is a very strong uptrend and there’s no reason to think that it’s going to change anytime soon.
With all of this being said, I do think that the market is finally starting to show some cracks, which might give you a nice opportunity to pick up a little bit of value here. Nonetheless, I also recognize that you need to be very cautious with your position sizing, as you could find yourself in a bad trade very quickly if you get to over levered and we start to see a deep correction.
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