- During the session on Thursday the market in Germany has dropped a bit, but quite frankly I think this ends up being a buying opportunity.
- While US indices are plunging, it’s worth noting that the DAX has simply been going sideways.
- The question at this point is whether or not it is a pause in the action before the trend continues higher, or if it’s distribution, as suggested in Dow Theory.
Ultimately, you should probably assume that the market is simply going sideways at the moment in order to digest a lot of the massive gains. The €22,000 level strikes me as potential support, and quite frankly we haven’t even tested it. There’s also a bit of support to be found at the €22,500 level, so I think it does make a certain amount of sense that buyers come in and pick up the DAX index when they get an opportunity to find a little bit of value.
Germany Leads the Way
As far as the European Union is concerned, Germany is almost always the first place people put money to work. In other words, this is a bet on the European economy coming out of a recessionary malaise that we have seen in several countries. Ultimately, this is a market that I think will probably remain a bit sideways until we see exactly what happens in other markets, because if the US indices do start to plummet even further, it’s hard to imagine that DAX avoids trouble.
Beyond this, you should keep an eye on the 50 Day EMA, which is right at the €22,000 level. This backs up the idea of support being there, so I think at this juncture we have to look at this is a “buy on the dips” market, something that we are already starting to see later in the European session on Thursday. If we were to break above the €23,000 level, then it’s likely that the DAX will continue to go much higher. It’s obvious that the trend is very strong to the upside over the longer term, and quite frankly it takes quite a bit to turn these trends around, especially on an index.
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