DAX Forecast: Index Pierces Support

I remain bearish and have no interest in trying to fight the overall trend.

The DAX pierced support Tuesday as we continue to see a lot of negativity. The €12,500 level is an area that a lot of people would be paying close attention to, and it’s not a huge surprise to see that the market has tried to recapture it. That being said, I do not think that the market is likely to continue seeing any real fight, and it’s probably only a matter of time before this market breaks down again.

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The size of the candlestick is worth noting as well, as it is a very long candlestick, suggesting that there’s a lot of momentum to the downside. The market breaking down below the bottom of the candlestick would signify even more negativity coming into the market, with fresh sellers jumping all over the DAX. Keep in mind that the market will continue to look at the reality of the European economy struggling. After all, we are even hearing stories of Hamburg having to limit hot water usage. This is not the sign of an economy that’s going to be doing well.

Rallies at this point should find plenty of sellers above, especially near the €13,000 level, and then eventually the €13,250 level. At that point, I would anticipate that the market will show plenty of exhaustion, and I don’t see any reason whatsoever in going long. Underneath, I think the market could find its way down to the €12,000 level, which is a large, round, psychologically significant figure, and an area where we have been noisy in the past.

It is not until we break above the €13,500 level that I would consider this as a market that I can be a buyer of. If that were to happen, then we could see a move to the €14,500 level. The 200-day EMA sits just below there, so I think that could offer quite a bit of resistance as well. Either way, the market looks very soft, and I just don’t see a scenario where I should be a buyer of the DAX. You will probably see the US recover much quicker than the European Union, especially Germany which has quite a few problems at the moment. With this being the case, I remain bearish and have no interest in trying to fight the overall trend.