Testing Previous Support for Resistance

The DAX has been somewhat volatile during the trading session on Monday, as we continue to look at the €13,250 region as an area of interest because it has been supported in the past, but we did break through it on Thursday of last week. Over the last two trading sessions, the market has rallied to test that area for potential resistance, so now “market memory” could come into the picture. At this point, it’s only a matter of time before the sellers jump back in as we continue to see a lot of negativity.

When you look at the chart, you can see that over the last couple of weeks, all of the impulsive candlesticks have been read, showing that there is much more momentum to the downside than anything. It’s not until we can break above the €13,750 level before I would start to question the overall downtrend. After all, there are a lot of concerns in the European Union, and of course, Germany when it comes to energy supply. In fact, Germany has gotten so desperate that they are starting to go back to coal.

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The 50 Day EMA is sitting at the €14,000 and is dropping lower. The market has recently bounced from the €13,000 level, which of course is a large, round, psychologically significant figure. If the market does rally a bit from here and then shows signs of exhaustion, is very likely that we may push to go down to the €13,000 level again. If we can break down below the €13,000 level, then it’s possible that we could go down to the €12,500 level next, an area that we had bounced from rather significantly as of late.

About the only thing that the DAX has going for it at the moment is the fact that the euro is cheap, but if there is going to be a major slowdown globally, even that probably doesn’t matter. I have no interest in buying any of the equity indices right now, not just the DAX. Quite frankly, we need to see a shift in inflationary expectations and central-bank attitude. As long as the market continues to have to fight these headwinds, I just don’t see how this market rallies for a bigger move anytime soon. A little bit of a bounce in the short term does make a certain amount of sense, but given enough time we will continue to see sellers.