German DAX: New Highs?Hey Traders,
The state of the German Economy, alike other economic zones and economies has seen twists and turns. From hopeful highs, to fearful lows, the transition from confidence to incompetence has been viewed widely. The current retracement above local and historic highs comes about as the US index markets also rise, after inflation reports and comments from the FED feeding global confidence.
Falls on fears the global economy will crash, back to rebounds on the basis that maybe things are not so bad. These fears and hopes can be seen throughout the general market and comments from the FED in the US giving an overall 'world sentiment'. Its important to take note of the fundamental and technical bias that presents, as they often go hand in hand.
The Point of fundamental analysis is to gauge current and future market mood. The point of Technical Analysis is to gauge the validity of a price point and its preferability amongst traders alike. A reduction in global tensions recently and lesser fears of an energy crisis have helped the global economy and indeed the German economy as they consume a lot of energy and require oil in copious amounts to function.
Putting the two together allows you to pick key short zones BEFORE negative news occurs, since markets are pretty much a transition of investors buying when things seem like they'll go up, to shorting when there is belief they will go down.
Germany, in particular, has frequently had a robust economy and the sustained growth of the economy has led to a boost in the value of the DAX as its inherent companies grow accordingly. It was considered at times the strong economy in Europe.
As Germany experienced a PMI reading of under 50, this generally reflects a contracting economy. This is also the case in other places in the world where there is very little growth, like the UK. This is mainly driven as consumers stop spending money and thus businesses make less money. Business is also slowed by the cost of borrowing and the cost of materials and machinery.
Sentiment Bias (market mood/fundamentals):
Particularly, Germany faces problems with residentials builds at the moment as more and more companies start to cancel planned projects that they were going to follow through with. It's just become too expensive for them to complete and they are having to scale back, further slowing the overall health of the economy.
There is also the budget crisis in which the planned spending by Germany to stimulate the economy has many questions over its head. The amount being borrowed comes heavily into question, particularly now.
Technical Bias (reading charts and using price):
We are returning to key price levels seen previously on Market falls. These are short areas and certainly not time to buy, especially inline with the aforementioned. The rally in price mainly comes as conditions are better elsewhere in the world and giving indication to what may occur in future. Short bias much preferred at this point, with a light intention, due to rapid moves into previous highs.
The reason why highs are used for shorting markets is because they tell you where the previously preferred long exit areas and thus short entry areas are located in the minds of investors and traders alike. Its important to note in conjunction that the most recent fall has not taken you enormously further down and therefore it can be inferred that somewhat long bias, whether founded or unfounded exists.
From here, I would be reacting / checking for lower timeframe entry confirmation and signs price is halting. One must be cautious when determining short areas. Identifying overall high prices and taking a fundamental bias is fine. But it has to be backed up heavily by rational and logical risk management plans in the event you do indeed reach higher highs, despite economic headwinds.
