The German index has broken significantly lower during the trading session on Thursday as we have sliced through the €13,000 level. Ultimately, this is a market that I think will continue to see negative pressure, mainly due to the fact that the German economy has less than stellar economic numbers, and then of course the fact that there is a major global slowdown in the sights of traders right now.
The reason this is so important is that the DAX has quite a few major exporters on the index, so it has a major influence on whether or not German companies are going to make money. As corporate earnings continue to be written down soon, it more likely than not will only add more negative pressure on the DAX. All things being equal, risk appetite is almost nonexistent at this point, so it does make sense that stock indices continue to struggle. Any rally at this point should be thought of as a possible “bear market rally” from time to time. I would not look at it as much more, at least not until the ECB gets involved.
Speaking of the ECB, they have recently suggested that they are going to become a bit more hawkish, but then they had a private meeting discussing bond yields in Italy. In other words, they may have to turn things right back around, as the German economy is struggling, right along with the rest of the European Union. After all, there is a serious lack of energy as the natural gas coming in from Russia continues to trickle.
With that being said, and the lack of economic growth, it’s very difficult to see the DAX takeoff in this environment. I think given enough time, we will see sellers on rallies, especially near the €13,500 level, assuming that we even get that big of a bounce. I believe that the market is more likely than not going to see plenty of selling pressure, and perhaps even an attempt to get down to the €12,500 level. If we can break down below the €12,500 level, that could open up a €2000 drop based upon the big “M pattern” that we have seen. Ultimately, I have no interest in buying this market, at least not until the ECB changes its attitude, or something fundamental does.
