DAX Forecast: Index Threatens Bigger Breakdown

Things are so bad in the European Union that they are talking about rationing energy, and that  is going to continue to weigh upon the economy.

• The German DAX index drifted a little bit lower to kick off the trading session on Monday.
• The index broke down below the €12,500 level, before bouncing a bit.
• By the end of the day, we ended up forming a bit of a hammer.

This suggests that we could get a bounce, but it’s also telling that we continue to threaten the same support level time and time again. In other words, it’s very likely that we will continue to see rally sold into, which makes quite a bit of sense considering what is going on around the world.

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Economic Impact

Keep in mind that the DAX has a lot of export-laden companies built into it, so the rest of the world certainly has a major influence on what happens in Germany. With the entirety of the world looking likely to go into some type of recession, this has a major influence on these exporters and German markets will probably continue to struggle. Furthermore, you also have to worry about the fact that the German economy looks like it’s about to take a major nosedive.

Things are so bad in the European Union that they are talking about rationing energy, and that  is going to continue to weigh upon the economy. That being said, I think we are going to see a situation where we get a little bit of a bounce, but a lot of people will be looking at that bounce as a shortening opportunity. At the first signs of exhaustion, it’s very likely that this market falls, especially with the 13,000 level above being a large, round, psychologically significant area of resistance, and of course has shown itself to be important in the past. Above there, the 13,250 level is another area that you need to pay close attention to.

The alternative is that if we break down below the bottom of the candlestick from Tuesday, the market is likely to drop down to the 12,250 level, possibly even the 12,000 level after that. We have been falling rather hard recently though, so I think it’s more likely that we see a bounce here in order to build up more downward momentum. If we break above the 50-day EMA, then it’s possible that we could see a move to the upside, but that would take a massive shift.