The DAX was 1.4% lower on Friday as European traders react to a big sell-off in U.S. markets. The Nasdaq fell 5% on Thursday, with the Dow off 800 points at the close. The Nasdaq has been driven higher by the large U.S. tech stocks and these were the leaders on the way down.
Much of the gains in recent weeks have been momentum and options-driven, with option call volumes exploding higher in recent weeks. A lot of the call buying was in small lots, which suggests that retail buyers were the main driver and many are talking about the frenzy of the last few months as similar to the tech bubble in 2000.
In economic data, investors may simply be getting out ahead of today’s Non Farm Payrolls release. Markets can be quiet in the European session until an NFP figure is released and Wednesday’s ADP Employment data was a large miss on analyst expectations, while yesterday’s jobless claims were still high. This suggests that the recovery may be slower than hoped and some profit-taking ahead of today’s number may have added to the bearish tone.
For the DAX there is no economic release today so the index will likely adopt the bearish mood of Wall Street until the NFP number and await the U.S. open, where traders will be nervous about some further weekend profit-taking.
The DAX is down 138 points at 13,057 but this has been a rejection from a key resistance level at 13,350. If we see a bearish day in the German index then we could test the uptrend support lines next, with 12,800 and 12,500 being the key targets. A stop-loss would be placed above the 13,350 highs. The Investing Cube Trading Program can help new traders with risk management and technical. Please find it here.
