The Dax German index initially pulled back a bit during the trading session on Friday to reach out to the EUR12,500 level, but then turned around to show signs of life again. A potential reason might be the German energy minister announcing during the day that a framework has been agreed upon in order to decide what to do about keeping energy prices down.
The market has been grinding back and forth and trying to climb for a while, so this was probably just an excuse to do it again. At this point, if the market were to break down below the EUR12,500 level, then it’s likely that the downtrend will continue. In the short term, I think we get a lot of noise and back and forth, especially due to the fact that this is just a headline about an agreement of a potential agreement. In other words, this is a market that I think is trying to front run something that may or may not disappoint.
If we do break down below the EUR12,500 level, it’s likely that this market will drop rather significantly, perhaps down to the EUR12,000 level. On the other hand, if we did turn around and take out the highs from earlier this week, we could see the DAX takeoff, as we are hanging around the 50-Day EMA in general. This does tend to attract a lot of push and pull, so consolidating around this indicator should not be a huge surprise.
However, I suspect what will end up happening is that the European Union is going to figure out a way to keep price controls intact, but that almost certainly will mean that the market is going to see a lack of supply. That will slow down the German economy, and at this juncture I think there’s no real good solution for the EU.
I will be looking for signs of exhaustion to start selling, but I don’t think it’s going to be an easy ride in either direction.As far as buying is concerned, I’ll have to wait and see what they are going to do about energy in the European Union before putting any money at risk. I suspect that a lot of the world feels the same way as well, as it could determine what happens this winter.