Index Bounces After Sluggish Start

I believe in selling rallies at this point, but we may get a short-term bounce.

The German DAX stock market initially fell on Friday, but the €12,800 level seems to be hanging on as far as support is concerned, and it’s likely that the market may try to bounce from here. I see a lot of resistance above, so therefore I think it’s going to be difficult to get overly bullish but if you are short of this market, it’s probably time to start thinking about taking profits.

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The €13,200 level is an area that I think will difficult overcome, although I suppose it is possible if the ECB starts to show more signs of accommodation after that, then the market will have the tangle with the €13,500 level, followed by the €13,600 level. It’s not until we break through all of that area that I would consider this a potential buying opportunity, and then I would anticipate that the DAX could make it to the €14,500 level.

We have seen a lot of selling pressure near €14,500 previously, so I would anticipate that there should be a significant amount of supply in that area. Breaking above that would obviously be longer-term bullish, but that’s a difficult thing to think of in this environment as traders around the world are worried about a global recession. Keep in mind that the German index is full of companies that are major exporters, and therefore other economies around the world have an outsized influence on this index. As long as that’s going to be the case, you will have to pay attention to the United States, Asia, and of course peripheral Europe.

The one thing that the DAX has going in its favor is that the euro is very cheap at the moment, and that does help the idea of exports moving around the world. German goods are cheap for a lot of economies right now, but if the customer is struggling to pay bills, I don’t know how much that helps in the long term. I believe in selling rallies at this point, but we may get a short-term bounce. Then short-term bounce should be thought of as an opportunity if you are patient enough, but if we were to turn around and break down through the hammer from the Friday session, we may simply fall apart and reach down toward the €12,500 level underneath.