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As the rest of the world is going to slow down, then these exports will slow down, thereby bringing down the value of the companies.
The DAX tried to break above the 50-day EMA but then fell rather significantly to reach support underneath. The 14,300 level has been an area of support previously, and it is likely that we continue to see buyers in this area. That being said, if the market were to break down below the 14,200 level, then we could see a significant breakdown. If that happens, then it is likely that the DAX will go looking to the 14,000 level, possibly even the 13,500 level.
Looking at this chart, it is obvious that the 14,900 level above has been like a brick wall, and now the question will be whether or not we can finally turn around and break above there. It certainly looks as if the market is threatening to go to the downside, so if we were to break down below the support underneath, is likely that we go accelerate to the downside. On the other hand, if we were to turn around and rally to break above the 200-day EMA, it would obviously be a very positive turn of events and could send the DAX much higher.
It is a bit difficult to imagine that the DAX is suddenly going to take off to the upside though because the fact that the Germans just had to take down GDP estimates suggests that we are going to see an underperformance coming out of Germany, and the DAX will probably reflect this. Furthermore, we have concerns about global demand for goods and services as a slowing down of the global economy certainly will weigh upon the exports coming out of Germany. Remember, the DAX is highly levered to exports, as there are so many major conglomerates that make up the bulk of this index.
As the rest of the world is going to slow down, then these exports will slow down, thereby bringing down the value of the companies. I do believe that we have a lot of issues out there that will continue to be negative, and it could work against the value of the index itself. I think that indices around the world are a little overdone, and the DAX looks very likely to follow suit. The ECB may try to bail out indices given enough time, but we are nowhere near that action at the moment.
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