The question now is whether or not we can continue to find momentum, or if we need to pull back a bit in order to build up pressure again?
- The DAX has been back and forth all day during the trading session on Thursday, as we have seen tight consolidation all week.
- We continue to hang around the €14,250 level, an area that previously had been the beginning of significant consolidation back in early summer.
- The question now is whether or not we can continue to find momentum, or if we need to pull back a bit in order to build up pressure again?
Stock markets are crashing again
The DAX may be somewhat supported by the idea that the ECB is only going to raise interest rates 50 basis points at the next meeting, as was leaked into the market earlier in the session.” If that is going to be the case, then it suggests that the ECB has gotten as tight as it’s going to be, which of course makes a lot of sense considering that the European Union has such a weak economy. Not only do they have inflation, but they also have massive problems when it comes to things like energy, and of course demand.
Winter is Approaching
Winter is coming, and even though the Germans say that they have “their reserves filled”, it’s probably worth noting that the reserves that they store only account for about 20 to 25% of need. In other words, it’s a word game and I suspect the markets are going to get several nasty surprises later this year. The German economy also is projected to shrink, so I do think that any rally in the DAX is probably somewhat short-lived or at least premature.
On a pullback, we could go back down to the 200-Day EMA, which is near the €13,600 level. Anything below there could really start to accelerate the downside, but I think at the very least we need to go sideways to work off some of the excess froth from the huge shot higher. Technically speaking, this is a chart that looks very positive, but the fundamentals don’t necessarily line up with it. With that being said, I think you need to look at this through the prism of those couple of levels I mentioned previously and understand that if we do take off straight up in the air from here, you will have to be very cautious about the market getting far too oversold to support the momentum.