DAX Forecast: Testing Uptrend Line

The Dax, German index rose initially during trading on Tuesday as we saw the market break well above the 50-Day EMA. That being said, the market gave back all of the gains to show signs of exhaustion during the day on Tuesday, as we still trade within what could be thought of as a potential “rising wedge.” Furthermore, the 50-Day EMA attracts a lot of attention, so it should not be a huge surprise to see that the market failed there. 

If we break down below the bottom of the candlestick for the trading session on Tuesday, now a shooting star, it could be the beginning of a more significant move, as the DAX will try to break down through the €12,500 level. Breaking down below there then opens up the possibility of testing the previous uptrend line. If we do break down below there, then I think the DAX goes down to the lows again. That means that we would be looking at a move to the €11,750 level. 

If we do break down below there, then it’s possible that the €11,500 level gets targeted, followed by the €11,000 level. Keep in mind that the European Union has a lot of headwinds out there that I will have to deal with, especially as the European Union has to worry about energy this winter. Germany is already talking about rationing energy, and that’s going to be horrible for industry. Remember, this index is full of major exporters, so industry is a huge thing for the German economy. 

Look for Shorting Opportunities

Even though the euro has been beaten down significantly, cheaper exports don’t matter if there are no exports to be had. Furthermore, other countries around the world are going to continue to struggle with recessionary headwinds, so it’s not as if German goods are going to find a lot of buyers anyway.

• It’s only a matter of time before we break down, so even if we do break to the upside, I will be looking for shorting opportunities above.
• While the ECB may have to loosen monetary policy, the Federal Reserve is going to continue tightening, which almost certainly will guarantee a recession globally, which we already starting to see in multiple different places.
• Fading rallies will continue to be the way I go in this market. 

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