The early September turned out to be quite advantageous to the German stock market index DAX. The prices kept from updating annual lows and bounced up by over 7.5% from 12600. However, the optimistic tendences seen in the market didn't last long: on September 13, the DAX trading session ended in a strong decline of 2.6%, creating the preconditions for a new fall.
It was influenced by the latest overseas news: the U.S. inflation data for August turned out to be worse than expected. Despite the fact that the consumer price index growth slowed from 8.5% to 8.3% (8.1% anticipated), the core CPI, from which fuel and food prices are removed, rose from 5.9% to 6.3%.
The continued growth of the core consumer price index is especially disappointing to stock markets as the Fed makes interest rate decisions based on this inflation indicator. Now there is no doubt that the Fed will raise the key interest rate by 0.75% on September 21, and some analysts are concerned about a full-percentage-point rate hike.
And as the ECB decided to follow the example of its American colleagues and be fully involved in tightening monetary policy, the European regulator should also become more aggressive in raising rates now, putting pressure on the weakening economy. The data on business sentiment and industrial production released this week turned out to be significantly worse than expected, not promising Germany, the largest economy of the European Union, anything good in the near term.
The estimates of the major financial corporations, such as Goldman Sachs, confirm that the European stock markets are moderately pessimistic due to an escalation in the energy crisis and tightening monetary policy. The onset of a recession is considered almost inevitable.
A drop in the DAX index seen on September 13 resulted in a “bearish engulfing” pattern formed on the chart, giving rise to a new wave of decline. The RSI indicator is in the neutral zone, not hindering the DAX to move to 12600.
The following trading strategy option can be suggested:
Sell DAX in the range of 13000-13100. Take profit – 12600. Stop loss – 13300.
Traders can also use Trailing stop instead of a fixed Stop-loss at their disposal.