DAX Forecast: Index Rallies into Weekend

We had sold off quite drastically over the last couple of weeks, so I would anticipate a short-term rally before continuing the overall malaise that we have seen in this market for so long.

• The German DAX Index initially dipped a bit in the futures market on Friday, but then turned around to show signs of strength.
• Ultimately, the market pierced the €13,000 level but found a bit of resistance there.
• The rally ended up being just under 9/10 of a percent, which is a good day at the markets.
• We are still very much in a downtrend, so one has to look at this through the prism of a market that is bouncing from extremely oversold conditions.

At this point, I’m waiting for signs of exhaustion that I can start fading. We clearly do not have that yet, but I think there is a huge case to be made for resistance at the €13,250 level, the €13,400 level, and then the €13,600 level. In other words, there is a lot of work to do to change the overall trend of the DAX, especially as the German economy has been less than thrilling to watch lately.

Germany’s Energy Woes

The ECB is essentially stuck with monetary policy because even though there’s a lot of inflation in the European Union, there’s no real way to fight it without causing major economic damage. After all, the Europeans cannot even provide their own energy at the moment and have gone so far as to label natural gas as “green energy”, right along with nuclear. Nuclear power has been taboo in the European Union, so this shows you just how desperate things are getting with the situation involving Russian gas.

Looking at this chart, the 50-day EMA is sloping quite drastically to the downside, and it looks like we are going to continue to see sellers at rallies that show signs of exhaustion or an opportunity to get short again, and I do think that eventually, we may have to threaten the €12,500 level again. If we break down below there, then it’s likely that we go much lower, perhaps down to the €12,000 level. Obviously, we had sold off quite drastically over the last couple of weeks, so I would anticipate a short-term rally before continuing the overall malaise that we have seen in this market for so long. It is not until we break above the €13,600 level that I would start to take a rally seriously, and at that point I would have to pay close attention to the overall economic situation globally.