The German DAX fell really hard to kick off the trading session on Thursday, crashing into a support area just above the €12,500 level before bouncing almost €300. This is the behavior of markets that are broken, and it is probably only a matter of time before something quite drastic happens. I don’t want to put too much money into these markets right now, because it seems like nobody knows what they’re doing, and the machines have taken over.
The ECB finds itself in a very difficult situation because it is dealing with a slowing economy that not only has to worry about slowing growth but inflation and a lack of energy production. In that scenario, the ECB can pretend that it’s going to start raising interest rates, but it will only do a token rate hike here and there because it is stuck. It’s really difficult to get dozens of economies to behave the same way, and I think the ECB is showing just how impossible that task is.
That being said, if the ECB loosens enough, then it’s possible that the DAX may be a beneficiary as so many German companies are major exporters. However, the global economy seems to be slowing down and then of course will show itself here as well. If you are a major German corporation, you have to worry about the health of your consumers, because it seems as if everybody is broken. Supply chain disruptions continue to be a major hamper to profits as well, so all of that being said, I remain bearish despite the fact that we had such a nice bounce during the day.
Be €13,500 level should offer a bit of resistance, as it was previous support. If we approach that level and show signs of exhaustion, I will not hesitate to start shorting again, because this is a market that has been very bearish for a while, and with good reason. It is not until we break above the €13,750 level that I would consider a rally one of substance, and then I think we need to challenge the €14,500 level before we can start to talk about a trend change. As things stand right now, it’s just easier to fade rallies in the DAX, just as it is in other indices.
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