I still believe that the DAX is going to continue to struggle over the longer term.
- The DAX initially pulled back a bit, but traders in Frankfurt started pushing the market higher as they waited for the ECB interest rate decision.
- The European Central Bank did in fact raise interest rates to 2%, as expected.
- At this point, the traders are now starting to focus on the inflationary headwinds out there, and of course, all the issues that are unique to not only Germany but the rest of Europe.
Stock markets are crashing again
I still believe that the DAX is going to continue to struggle over the longer term. This has been a very nice rally, but at this point, we are pulling back just a bit from the trendline as I write this article. If we were to break down below the bottom of the candlestick for the Thursday session, then it’s possible that we could drive down to the 50-Day EMA. At that point, then you could be looking at the possibility of a move down to the €12,500 level as well. Ultimately, this is a mark that I think is going to blow in the wind just like other indices are according to the global slowdown.
Waiting for ECB Expectations
However, you need to keep in mind that Germany must worry about energy this winter. I do think that this has been a very strong and nice rally, but it still smacks of a bear market rally, meaning that about the time everybody gets sucked back into the market, they will probably get their heads ripped off. This has happened multiple times in various markets, and we are setting up for more of this again. However, if we do manage to break above the 200-Day EMA, which is currently €400 above trading, then it is finally a completely confirmed uptrend.
A lot of this is going to come down to whether traders are focusing on the real economy or liquidity. With ECB tightening monetary policy, it’ll be interesting to see how they see the future monetary policy. There have been multiple attempts by traders on Wall Street and other places to force the Federal Reserve to loosen monetary policy, but quite frankly it’s not a fight that they have been winning. We occasionally get these vicious bear market rallies, only to turn around and fall. Until something changes, I must assume that we are heading toward more the same.