The European Union must be unraveling, or at least that’s what the charts are telling me. The DAX has seen some massive falls as of late and the Euro is looking much weaker on the charts. But don’t be deceived by market movements, and the prospect of the bears as there is a lot of movement yet to come.
Source: Blackwell Trader (DAX, D1)
The DAX descending wedge lead to a strong breakout lower much to the shock of markets, which had expected a bullish push of the channel that had been in play for some time. But, after 3 tests of the resistance the market has decided on a push lower to try and figure things out. This may sound a little silly, but many have been talking of a correction from some time, so are we there yet?
The answer is not so clear at present but markets are worried about the state of the EU and the ECB’s willingness to act at present. The ECB’s mandate has been so far to talk up a storm and try and refrain from acting if possible; especially if the market moves accordingly. The politics that are involved are complex to say the least and this can lead to hamstrung economic action when it comes to crises, which in turn leads to pain on the markets. Luckily we have seen the ECB looking a little tougher at the deflation problem in the market and as a result, many believe that they might be able to fight it off.
So with the massive fall in the DAX it certainly looks like its heading for the trend line in play and won’t stop until it touches it, the question is what then…
Well, if we see a strong push through by the DAX expect to see heavy selling as markets start to panic in the Euro-zone. In this region markets have no sway and volatility will certainly be heavy amongst the chaos.
If we see a bounce of the trend line, it could just be a minor correction and business as usual for the long term in terms of bullish runs in equities.
Either way the DAX is an equity index to watch at present, is it a precursor for other world equity markets? It could well turn out that way, but the trend line is one the key thing to focus on as the DAX moves into uncharted territory.