German Stock Index Could be Leading the Way Down

Today 02/21/22 the main US stock indices were closed for the Presidents day holiday.  The German Stock Index – DAX (DEU40) was trading.

Please see the daily DEU40 chart courtesy of Trading View.

Since March 2020, the DEU40 has had a similar pattern to the S&P 500 (SPX) .  On 02/21/22 the DEU40 had a cross of its 50 – day moving average (MA) below its 200 – day MA.  This is  called a “Death Cross” and usually signals a sharp decline could be imminent.  However, sometimes it could be a lagging  indicator.  Note that in  March 2020 the “Death Cross” came at the crash bottom.

The evidence from the  hourly Point & Figure chart indicate that the current “Death Cross” could be signaling  the start of a sharp drop.

On 02/21/22 the DEU40 had a decisive break below important support and implies  a drop to at least the next Point & Figure support at 13850.  If that support level is broken the DEU40 could decline to a Fibonacci .382 retrace of the bull move that began in March 2020.

Traders are currently long half of a 50%  position of non-leverage SPX funds with a stop loss on a  move below SPX 4290.  If after the open of the SPX session on 02/22/22 – 9:30 AM – ET  the stop is  triggered,  use  the proceeds to short  non-leverage SPX funds.  Since there could be a gap down of the SPX on the 02/22/22 open use a 1% move above the short entry price as the stop loss level for the short position.