DAX crosses the 100 day EMA for the third time this year
The DAX30 has once again crossed the 100 day EMA for the third time this year. After the previous two crosses, the index went ahead to lose an average of 15%.
The index has already reached a trough of 27.55% this year with each drop weakening and bear exhaustion showing up as evident from MACD divergence.
The index has priced in a lot of bad news including the impact of Russia's invasion of Ukraine, high inflation pressuring consumers budgets and ECB rate hikes.
It is highly unlikely that a recession in Europe has been priced in. The BoE acknowledged that the UK entered a recession in Q3. Eurozone PMIs released this week showed that manufacturing is already in recession territory. Pessimism in the sector is still high but supply chain pressures seem to be falling amidst falling orders.
The question on my mind is how deep the recession in Europe will be and how long it will last. I'm currently bearish on European indices as bullish sentiment or lack of bearish price action shows a disconnect from fundamentals.
Looking at volume flow (FDAX futures), it can be seen that short positions have largely reduced from a peak of 125K in September to the current 33K. Long positions have also fallen from 134K in Oct to 92K. This implies that the current bullish price action has no legs.
This can be collaborated with On Balance Volume showing that inflows might have peaked at the August - September highs.
In summary, this is why I'm still bearish and looking to sell the rips:
The index has already reached a trough of 27.55% this year with each drop weakening and bear exhaustion showing up as evident from MACD divergence.
The index has priced in a lot of bad news including the impact of Russia's invasion of Ukraine, high inflation pressuring consumers budgets and ECB rate hikes.
It is highly unlikely that a recession in Europe has been priced in. The BoE acknowledged that the UK entered a recession in Q3. Eurozone PMIs released this week showed that manufacturing is already in recession territory. Pessimism in the sector is still high but supply chain pressures seem to be falling amidst falling orders.
The question on my mind is how deep the recession in Europe will be and how long it will last. I'm currently bearish on European indices as bullish sentiment or lack of bearish price action shows a disconnect from fundamentals.
Looking at volume flow (FDAX futures), it can be seen that short positions have largely reduced from a peak of 125K in September to the current 33K. Long positions have also fallen from 134K in Oct to 92K. This implies that the current bullish price action has no legs.
This can be collaborated with On Balance Volume showing that inflows might have peaked at the August - September highs.
In summary, this is why I'm still bearish and looking to sell the rips:
- Recession in Europe not priced in or at least partly priced in.
- Inflation is still a sore thorn for Europe with YoY increases crossing the 10% mark.
- Volume flows for traders are showing signs for peaking.
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