#DAX & #SP500 Forecast (8 Dec 2023)

DAX Forecast: is in the Stratosphere

I suspect that it is only a matter of time before we see a reset.

The DAX slowed down a bit during the trading session on Thursday, as we are near the €16,600 level. At this point, the market has been a little overextended for quite some time, but at this point in time it’s a situation where the market has ran with the idea that cheap money is coming. After all, the market will continue to pay attention to the idea of some type of monetary listening coming out of the CB, as Europeans are bracing for a recession. It’s a bit counterintuitive, but stock markets love the idea of poor economic performance, because it means that central banks will start throwing cheap money at people.

A pullback at this point is desperately needed, and quite frankly we could drop it down to the €16,000 level and still see the market as being overly bullish. This is beyond parabolic, and at this point, the DAX is a situation where you have to look at it through the prism of being overbought, and therefore you can either stay away from the market or start to short the market with smaller positions. I am not one who typically abdicates the idea of going against the grain, but clearly, we have an overdone setup.

Overdone? Well, yes

• The DAX has gone straight up in the air for quite some time, and therefore I think it’s probably only a matter of time before we see a little bit of reality come back into the market.
• While I don’t necessarily like the idea of going against the overall trend, I certainly would not be chasing it up here.
• I would anticipate that the market could try to get to the €17,000 level, but you are not buying at a reasonable price after this type of move.

I suspect that it is only a matter of time before we see a reset. That reset could be a nice buying opportunity, but at this point I think you need to be very patient to wait for applying long. Furthermore, I would also be very cautious about position sizing, even if you do get a pullback, because you can always add to a position that is working out. Expect a lot of volatility to say the least.

S&P 500 Forecast: Bounces from Bottom of Range

In the end, this market appears nearly impervious to selling pressures.

• The S&P 500 exhibited signs of early support in Thursday's trading session, indicating a potential attempt to stabilize within the familiar consolidation range.
• This move comes on the heels of a tumultuous Wednesday, a day that left many traders reeling. Despite this, the market is abuzz with excitement over the prospect of a "Santa Claus rally."
• This is a well-known phenomenon at the end of the year, so there has been a lot of “front running” at this point.

For the time being, the primary focus remains on whether we can maintain our position within this range or if a retreat is in the cards. Should a downward shift occur, the 4500 level is poised as the next support level, closely followed by the 50-Day EMA, which hovers just above the critical 4400 level. Regardless of the direction, traders are searching for reasons to go long on the market, even in the wake of weeks of rapid ascent.

A Complete Turn Around?

Wednesday's trading session delivered a sharp about-face, leaving market participants somewhat shaken. As we approach Friday's jobs report, there's a palpable sense of anticipation regarding how investors will respond on Thursday. In the grander scheme of things, it appears that we're in a holding pattern, a stance that makes sense given the remarkable 11% surge witnessed in just a couple of weeks.

Effective position sizing becomes paramount in such an environment. The trajectory of interest rates remains a key determinant of market dynamics. Lower interest rates generally favor stocks, but there is a threshold beyond which rising rates can inflict damage. Thus, it's advisable to keep a vigilant eye on the 10-year yield, as any spike could exert adverse pressure on equities.

In the end, this market appears nearly impervious to selling pressures. However, it's essential to recognize that we are currently in an overextended state. The "Santa Claus rally" may be beckoning, but a degree of caution is warranted, as volatility and market sentiment can shift rapidly. As we move forward, the S&P 500 will continue to test the boundaries of its consolidation range, and traders need to be cautious about the volatility, and the fact that the Non-Farm Payroll announcement comes out on Friday will have its effect as well.

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