The DAX rallied a bit on Friday, but was not that impressive. In fact, when we ran into the €13,250 level, the market pulled back yet again, as it shows a real reluctance to continue going higher. After all, the rest of the world looks about the same, so I’d be very cautious about getting overly bullish in any stock market right now, including this one.
The DAX is the bellwether for the European Union, so keep in mind that a lot of traders will be paying close attention to it. If we do in fact continue to see negativity here, you will almost certainly see it elsewhere as the market participants continue to look at whether or not growth can be found over the next year or so. It’s very unlikely that we will have a good economic setup, so I think we have a situation where it’s almost impossible to buy anything and hang onto it.
Currently, the €13,000 level seems to be an area of significant support in the DAX, so I will be paying close attention to that as well, because it is an area that not only is a large, round, psychologically significant figure, but it is also an area that will attract a lot of attention. If we break down below there, then it’s likely that the market will go looking toward the low near €12,500.
On the upside, we would need to break above the €13,750 level to see a bullish twist in action, something that I don’t foresee happening very easily. Because of this, I do prefer fading rallies more than anything else, because there’s just no good news out there. As long as that is going to be the case, there’s no point in fighting the overall momentum.
The €12,500 level being broken to the downside would potentially open up a massive bear market, perhaps sending the DAX down to the €12,000 level in short order. That being said, this is a market that is going to be just as volatile as the rest of them so I’m not overly worried about it one way or the other. In fact, you’d be forgiven for stepping away and not being bothered trading it in this environment.
