Not out of the woods just yet....

Taking a quick look at the German Dax index, .the barometer for the German stock market has been tumbling along with the global stock markets over the last few weeks. Yesterday, the index completed a lap for the year. The low for the year reached 9382.82 back on January 6th. The low yesterday extended to 9338.20. The lap was completed and in the process the index fell over 24% from the highs. Ouch! That is one bad trade to swallow for those investors!

For international investors who jumped on the "trade of the year" from many pundits, the ride has not been a pleasant one. After all, everyone knew at the beginning of the year the ECB was going to pump liquidity into the market via QE. In the past, when central bankers did this the stock markets rallied. Just look at the US and Japan markets for proof. The only concern was the currency exposure. However, that could be hedged away. I know the ETF I bought on the index was hedged as to the EUR currency exposure I faced (the 2nd slam dunk trade was the EURUSD was going down). For domestic investors in Europe it was simply, take your Euros and buy the strongest of the European economies. Money in the bank, right?

Well, not only has the EURUSD rallied but the German stock market gave up ALL it's gains.

The combination of liquidation and the un-hedging of the currency hedges, may have led ironically to the EURUSD rising over the last few days.

Why?

Two crowded trades

1. German stock market longs

2. EURUSD short

One crowded trade can lead to a sharp move in the opposite direction. For the German Dax, it may have been two overcrowded trades.

The chart above showing a 24% decline, certainly shows that dynamic (PS: NOTE the decline after breaking the 200 day MA - down goes the DAX).

Today, the market has recovered. The index moved from a low of 9338.20 yesterday to a closing level of 10128.12. The 8.46% increase from the dead-ass low yesterday is a welcome relief. However, has the pain inflicted on the global players who pushed the market up so strongly in the first 3 months of the year, led to wounds that won't heal.

Will those players return?

We always get clues by the price action and the tool applied to those moves. The correction off the hourly chart of the sharp trend move lower in August, shows that the move higher still remains below the 38.2% retracement level at the 10228.89. That will be step 1 if the buyers are returning. The next step 2 would be a move above the 50 hour MA currently at 10342.04 (see chart below). Without those technical moves, it is premature to talk about a more meaningful move higher.

The market can giveth. And it can taketh away. For traders from around the globe who thought "Go German" was the way to go in 2015, it ain't always so easy.