Index Forms Massive Shooting Star

You may need to pay attention to Asia, specifically the Nikkei 225, and how it behaves overnight to get an idea of how the DAX may behave.

The German DAX Index initially rallied on Tuesday to reach the €13,450 level before turning back around. By doing so, it suggests that we are going to continue to see negative pressure, especially as the dreaded “shooting star” formed by the end of the day. It’s worth noting that the most recent impulsive candles have all been red and that suggests that there is plenty of interest in selling.

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That being said, we have bounced quite sufficiently from the €13,000 level to suggest that perhaps it is important, and there are buyers down there willing to defend it. If we break down below the €13,000 level, then it is likely that the DAX will break down rather significantly, perhaps reaching down to the €12,500 level. The German index will have a lot of the same issues that other indices have around the world right now, as there is a real concern about growth, or perhaps the lack thereof. With that in mind, feeding rallies continue to make sense, which is exactly what people did during the day.

The alternative scenario is if we turn around and take out the big massive red candlestick from Thursday of last week, meaning that we can break above the €13,750 level. If we do that, it would be a very positive turn of events, perhaps opening up a move to the €14,000 level where the 50-day EMA presently sets. I’m not looking for that move but would have to pay close attention to it if it does in fact occur. Keep in mind that the DAX should move right along with other indices around the world, so you may need to pay attention to Asia, specifically the Nikkei 225, and how it behaves overnight to get an idea of how the DAX may behave. Granted, it doesn’t have to follow it, but it gives you a good idea as to what the risk appetite is going to be around the world.

I do think eventually the sellers come back, so not looking for the market to end the downtrend anytime soon. Because of this, I’m simply looking for signs of exhaustion that I can sell into. Unfortunately, it happened much quicker than I would’ve thought so, therefore, I’m still looking for opportunities at this point. Ultimately, DAX is likely to continue falling.