Share markets around the globe rallied as fears about the “fiscal cliff” receded. This is a flip around in market thinking – from pricing a US fiscal stalemate to an assumption that agreement is likely. While this may be the case, the balance of risk now shifts to the downside. Traders looking for suitable markets to short could do well to examine the “double down” dynamic of the German 30 Index.
Over 2012 the German 30 outperformed the Euro 50 (the brown line on the chart). In overnight trading the index posted a new 2012 high. This makes sense for equity investors within Europe – the German economy is the “strong man” of the continent – its the local “safe haven”.
German 30 – Daily
Source: CMC
IMO this makes the German markets vulnerable however the European situation plays out. An improvement in the outlook (debt re-structures, banks re-capitalised, budget deficits cut or reversed) would see the safe haven investors moving out of German stocks and back into the southern nations. Any reversal of the recent positive developments would likely see all European share markets down. Either way, the German 30 risk is on the downside.
Which leads me to last night’s action. A high at 7.642, and a close AT the two year high (7,601.6). Oscillators are in strongly overbought territory. I’ll split the trade in two, to take advantage of any positive sentiment tonight:
A limit order
SELL German 30 at 7,625, stop loss above 7,642
and a stop-entry order
SELL German 30 at 7,590, stop loss above 7,602
CMC Markets Blog 