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DAX Forecast: Index Drops Below the 50 Day EMA

Ultimately, the candlestick on Thursday does suggest that we have further to fall.

The German index tried to rally during the trading session on Thursday but gave up the gains rather rapidly. By doing so, the market has been broken down significantly to slice through the 50 Day EMA. This is a very negative turn of events, and it now looks as if we are trying to test the EUR14,250 support level. If we were to break down below that level, it is likely that the DAX will drop significantly. In fact, one has to wonder whether or not this has been a “throw-over”, which is also sometimes called a “false breakout.”

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The German index will suffer at the hands of the fact that the German government has recently had to acknowledge that GDP numbers are coming in at much lower than anticipated levels. By doing so, this suggests that the market is going to continue to see negativity, as the downward pressure will certainly have been a bit of a “shot across the bow.”

A breakdown below the EUR14,250 level could open up a move down to the EUR14,000 level rather quickly, followed by the EUR13,500 level, and then possibly the EUR13,000 level. This has been a massive bounce, but now it looks as if the bullishness may be running out of momentum.

On the other hand, if we were to break above the EUR14,900 level decisively, then we could take on the 200 Day EMA, and then maybe even the EUR15,500 level. This would be a bullish sign obviously but would also take a significant amount of momentum to come into the picture in order for the DAX to rally like that. Because of this, I think it is much easier to break down than it is to bounce, but there is also 1/3 possibility.

The third possibility would be that the market goes back and forth in this general vicinity, with the EUR14,900 level being resistance, while the EUR14,250 level offers support. Keep in mind that it is the jobs number on Friday, and that has a significant amount of influence on the volatility and the risk appetite overall. If the risk appetite starts to wane, then it is likely that we will see the DAX fall right along with it, and of course vice versa. Ultimately, the candlestick on Thursday does suggest that we have further to fall.

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