- The German DAX had initially fallen a bit during the trading session on Wednesday, reaching the 50 Day EMA rather quickly before turning around and showing signs of life.
- Buying testing the 50 Day EMA, it looks as if the market is trying to sort out whether or not it can rally from here, or if it will drop.
- This makes a certain amount of sense, considering that we are in the middle of the larger consolidation area and the 50 Day EMA is starting to flatten
Furthermore, keep in mind this is the middle of summer, and therefore a certain amount of volume will probably be missing from the market. A lot of large traders are probably away at holiday at the moment, as August is one of the most popular times of year to exit the markets. Then liquidity and of course a lack of overall interest could keep this market somewhat range bound, something that I think could be said about most indices.
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Germany Leads the Way
Germany tends to lead the way for Europe, so I’d be paying close attention to what’s going on here, because it can give you a bit of a “heads up” as to how the other markets in that region will behave. Furthermore, Germany being one of the largest economies in the world makes the DAX very important in and of itself. Beyond that, it also can filter out where some of the momentum and money may go in Europe overall, because if the DAX does well, and then traders will start to look to other indices such as the IBEX for more Alpha. On the other hand, if the DAX starts to fall, other indices on the continent get hammered.
That being said, we are dead center of the overall consolidation area at the moment, with the €23,000 level underneath being a massive support level, and the €24,600 level above being a massive resistance barrier. I don’t know if we have the momentum to break out of it in the short term, but I will most certainly be looking forward to see whether or not we get an opportunity. In the short term, range bound back and forth trading makes the most sense.
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