The German index has lowered to kick off trading on Monday and then fell straight down to the floor. That’s not a huge surprise, due to the fact that the inflation numbers in the United States were horrific on Friday, and it looks as if we are going to continue to see a lot of negativity around the world. If the Federal Reserve continues to need to tighten monetary policy, it does make a certain amount of sense that we will continue to see more of a “risk-off” type of attitude globally.
If the DAX is falling apart, you can bet your bottom dollar that a lot of the other smaller indices are doing the same thing and will continue to do so. Yes, we are a bit overextended to the downside, but at this point, it’s likely that we will continue to see this area underneath as a potential support level that could cause a bit of a bounce, but it also looks like it will get shot through. Ultimately, I think we break down below there and go looking to the 12,500 level. Rallies at this point should see plenty of resistance at the 50 Day EMA, as well as the 14,000 level.
Moves like this generally do have a bit of follow-through, but they also tend to have a bit of a bounce as markets cannot go in one direction forever. However, if we were to break down below the bottom of the candlestick for the day, I think that would only show an exacerbation of the nastiness in this market. The EU has a world of problems right now, and at this point, it’s likely that they will continue to see reasons to sell every time we rally. The European Union is very soft at the moment, and also has to worry about minor things like powering an economy!
It’s not until we start to see the US indices turnaround that we will more likely than not see the European Union recover. By European Union, I mean Germany. Germany is roughly 82% of the European Union, so this index will lead the rest of them around the continent, so even if you’re not trading this particular market, you should always keep an eye on it. At this point, it looks miserable.