Index Pulls Back from Week’s Highs

Risk appetite will have a lot to do with what happens next, and you need to pay attention to the rest of the world and how it’s behaving to give you a heads up as to how we go from here.

The DAX pulled back just a bit on Friday as we have pulled back to show signs of hesitation. As the DAX has found itself between the 50-day EMA underneath and the 200-day EMA above, it does make sense that we would see a lot of back-and-forth. After all, this attracts a lot of algorithmic trading, and is likely that we will see a lot of interest in both directions.

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Keep in mind that the DAX has the 200-day EMA at the €14,800 level, and I think it’s likely that we would see quite a bit of a barrier just above. Keep in mind that the DAX is going to represent Europe on the whole, as it is the largest index and Germany is the largest economy. Because of this, the market is likely to continue seeing a lot of reaction to the concerns out of the ECB, as traders are starting to focus on the fact that they may have to raise interest rates. That being said, the market is likely to see a lot of volatility more than anything else, but you can say that about all indices at the moment.

If we break down below the 50-day EMA, then it’s likely that the DAX will drop to the €14,000 level. If we break it down below there, it’s likely that we will go looking to reach the €13,200 level. Alternately, if we were to break above the €14,800 level, and by extension the 200-day EMA, it opens up the possibility of an attempt to reach €15,000 above. In general, this index will probably outperform other European indices, so if you’re not sure what to do, quite often you compare them up by going long the DAX while shorting one of the smaller indices.

Looking at this chart, I think you see a lot of noisy behavior over the next couple of weeks, but if we were to somehow break above the €15,000 level, that would be the signal that the DAX is ready to recover. That being said, risk appetite will have a lot to do with what happens next, and you need to pay attention to the rest of the world and how it’s behaving to give you a heads up as to how we go from here.