DAX Forecast: Running Out of Momentum? – 16 November 2022

The DAX initially tried to rally during the trading session, but by the time the DAX got to EUR14,400, we started to see a bit of a pullback.Furthermore, we have had reports during the day that a couple of Russian missiles may have landed in Poland, killing a couple of its citizens.This is obviously a major escalation of potential trouble around the Ukrainian war, and therefore it does make a certain amount of sense that money may flow from Europe, especially risk appetite-related assets such as German stocks.

The market was already a little overextended to begin with, so it’s not a huge surprise to see that perhaps we need to pull back. If we do pullback from here, the logical first target would be EUR14,000. After that, we are more likely than not going to be looking at a move down to the 200-Day EMA, near the EUR13,600 level. That’s an area that of course will be followed quite closely, because of course of the importance of the 200-Day EMA, but also the fact that it was a previous peak high. With that being the case, it makes a lot of sense that we would see a bit of a reaction.

Breaking down below that level opens the possibility of a move down to the 50-Day EMA at the EUR13,200 level. Alternatively, if we were to turn around and take out the highs of the last couple of days, then it’s possible that we could see this market take off to the EUR14,800 level, but that would take a huge sigh of relief to make this market look likely to continue seeing that type of momentum.

Ultimately, I think a pullback makes quite a bit of sense, as we have seen far too much to the upside in the short run. The DAX has been quite violent as of late, so therefore a little bit of profit-taking might make some sense as well. Because of this, I suspect we have follow-through. Nonetheless, I’d be cautious about position sizing since there has been so much noise as a link, and it will probably continue to be the case. I remain skeptical of “risk on moves” at this point. Be cautious, we are going to have a dangerous couple of days.

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