It’s difficult to sit on the short position over the weekend as news can come out and you may have a huge loss on your hands.
The German index tried to recover early on Thursday but then fell apart as we have sliced through the crucial €13,250 level. If we can break down below that level, then it’s likely that we are going to continue going even lower. In fact, we closed at the very bottom of the candlestick for the day, and now it looks like we are going to go down to the €12,500 handle, where we had bounced from previously.
The German index is the leader of the European Union, so if we continue to see the DAX fall, that’s going to bring the rest of the European Union down with it. Because of this, even if you are not trading the DAX, you need to pay close attention to it because I have such a major influence on multiple other markets. That being said, the market will continue to see a lot of volatility, and I think as we head into the weekend, it may be a scenario where traders tried to take profit heading into the weekend. After all, it’s difficult to sit on the short position over the weekend as news can come out and you may have a huge loss on your hands.
That being said, it’s not likely that we are going to rally, and even if we do, I think that’s only going to offer a selling opportunity closer to the €13,500 level, assuming that we can even get there. I like the idea of shorting this market every time we get signs of exhaustion, and therefore I think it is probably going to be a scenario where we do continue to reach that previous low. Breaking down below that area opens up the possibility of a move down to the €12,000 level, but that does not mean that it will be quick and easy.
There is a lot of fear out there and indices, in general, are suffering as a result. Because of this, it’s likely that we will see major volatility and selling opportunities along the way. I would not put huge positions on it, because stock markets are under extreme amounts of pressure. Furthermore, the market has to focus on the idea of a major “risk off” attitude around the world so I do believe that we will see even more pressure next week.