Things are going to get ugly, and the DAX is just one of many indices that has to deal with the ugliness out there.
The DAX broke down again on Friday as we continue to see a lot of negativity in equities overall. Furthermore, the 14,000 level has been sliced through, and it looks as if we going to continue going much lower. At the 13,500 level, there’s likely to be a little bit of selling pressure every time we try to rally because the German index is a bit of a window into the outlook for the European Union.
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Rallies at this point in time will continue to be looked at with suspicion, especially with the 50-day EMA sitting just above at the 14,250 region, an area that should continue to attract a certain amount of attention. If we do rally from here, I suspect that the first signs of exhaustion will get jumped upon, as we are more likely than not going to continue to see a lot of negativity. If we break down below the 13,500 level, then it’s very likely that the 13,200 level gets targeted next.
The DAX is highly sensitive to global risk, as so many of the major components of the index are massive exporters. On the other hand, you also have to pay attention to the European Union economy itself, because Germany is the engine of it. In other words, there’s not much out there that makes me think that we are going to go much higher. Because of this, I think that not only will the DAX suffer, but indices overall will. Keep an eye on what happens in Asia on Monday morning, because if the Japanese start to sell off drastically, that might lead to a continuation of overall negativity. The inflation numbers in the United States were horrible, so that suggests that the Federal Reserve is going to continue to tighten monetary policy. While most retail traders will not make the connection, a stronger US dollar will continue to punish countries around the world that have borrowed so much in those very same US dollars as they try to pay them back. In other words, things are going to get ugly, and the DAX is just one of many indices that has to deal with the ugliness out there. Given enough time, I would not be surprised at all to see this market reach its lows again.