The best scenario is that you fade exhaustion candles.
The DAX rallied a bit on Monday as we initially gapped above the EUR14,000 level in the futures market. The market seems to be hanging around the 50-day EMA, and now the EUR14,250 level comes into the picture to offer resistance. Ultimately, I believe it is only a matter of time before the sellers come back in and start pushing this thing lower. Rallies at this point will continue to be looked at as a potential selling opportunity.
In fact, the market is essentially at the top of a major descending triangle, and therefore sellers would probably be attracted to that as well. If we break down below the bottom of the candlestick for the trading session on Monday, I would anticipate that we could threaten the EUR14,000 level, an area that will be important. If we break down below there, the market then could open up the possibility of a move down to the EUR13,500 level. In general, when you look at this chart you can see that we have given up gains every time we tried to rally, and equities, in general, have been rather difficult to get excited about.
However, if we were to break above the EUR14,250 level, then it is possible that we could go looking to the EUR14,500 level, which would be a psychologically important area, especially as we have seen sellers enter that area as well. Furthermore, the 200-day EMA is sitting above there and is drifting lower. In general, this is a situation in which I think you should be looking for selling opportunities, but you also have to keep in mind that the DAX will move right along with other indices around the world.
Tightening central banks, and of course, the global economy slowing down, continue to be a negative for the DAX, which makes quite a bit of sense as there are so many major exporters on the index. After all, the major exporters are going to need to have customers to export to. As risk appetite continues to fade in multiple economies around the world, it is difficult to imagine that Germany is going to be any different. This is especially true as the European economy itself looks so vulnerable over the last several months. The best scenario is that you fade exhaustion candles.