Investors’ insatiable appetite for risk has caused the major U.S. stock indexes to hit repeated new all-time highs. As the already-inflated bubble enlarges on Wall Street, other global indexes are starting to join the fun. Today for example, saw Germany’s DAX Index climb to a fresh record high. Due to the lack of any significantly bearish news, and the still-low global bond yields and record low interest rates, many investors still believe that the higher-yielding equity markets provide good return on investment with acceptable levels of risk. At some point, the bubble is going to burst but until that happens, the equity market bulls are going to milk it for as long as possible. The dips are becoming shallower, and it has been weeks since the last noticeable down move was observed. These are signs of a good healthy market, but at the same time the extended bullish run means we are getting ever closer to the time when the markets will collapse under their own weight once enough participants withdraw from the markets as they book healthy profits. For now, though, onwards and upwards they go.
If the DAX manages to sustain its breakout at these highs, this could mark the start of a major continuation upwards because the German benchmark may have some catching up to do with U.S. counterparts. The DAX’s underperformance has been in part due to the large number of export-oriented stocks that make up the index, which have been undermined by a rising euro. But the single currency has eased a little in recent times, making German stocks relatively more appealing. However, one factor that could hold back the DAX and European stocks in general is the potential for Catalonia to separate from Spain, with Catalan President Carles Puigdemont telling the BBC today that he would declare independence "at the end of this week or the beginning of next." At a minimum, this could keep the gains in check for European markets.
But I must admit: I wasn’t expecting the DAX to reach a new record-high level this quick, as I had outlined in my previous report here on September 21. However, after an impressive rally it has hit a new high today and unless we see a sharp rejection in the coming days then we may see the onset of a Wall-Street-style rally in the coming days, as the health of the Eurozone economy improves, while the ECB keeps monetary policy extra-ordinarily loose for a while yet. If the rally can sustain itself above 12950-75 area, we may see a continuation towards the 127.2% Fibonacci extension level at 13246 next. However, if support at 12900 breaks first, we may see a deep pullback as the latest breakout in this case would be considered a false move.