The DAX Index has rallied a bit during the trading session on Tuesday, we gave back a bit of the gain at the highs of the day to form a bit of a shooting star. At this point I think the market is far too stretched and looks very much like a lot of other indices around the world, specifically the CAC Index in Paris. In other words, I think a short-term pullback is necessary in order to find some type of value. After all, the last thing you want to do is try to chase a trade that has already broken as quickly as this one has.
Expect Buyers
- That being said, it did rally for reason, and assuming that nothing changes financially, you would extrapolate that there should be buyers on a dip.
- Right around the €14,500 level, I would expect to see buyers based upon the fact that there had been previous resistance.
- I would have to see some type of pullback and daily candlestick that suggests the buyers are coming back, but at this point that would be my plan.
Alternatively, if we can break above the top of the candlestick, then the DAX could go looking to the €15,500 level, an area that cause quite a bit of noise last year and was the beginning of the significant selloff that we had seen. You should also keep in mind that the German index represents a huge swath of blue-chip stocks in the European Union, which of course mainly our exporters as the German economy is so export driven.
The €15,000 level is an area where people will be paying a lot of attention to as well, because it has a lot of psychological importance attached to it, so I would expect that to attract a lot of headlines. Once we break down below there, then the natural proclivity is for people to panic and get out of the market. This is the pathway down to the €14,500 level from what I can see. In other words, I’m waiting for the DAX to come back down to reality, so that I can pick up a little bit of momentum without trying to buy it all the way up here, chasing the so-called “FOMO trade.” It’s probably worth also pointing out that we recently had seen the so-called “golden cross”, so a lot of longer-term money managers are already long.
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