Ghost Of “Deutsche Bank” Haunts German Markets – Time To Buy Put Options
European stocks declined on Monday as investors were cautious ahead of a couple of political and economic events with the potential to shake up the currently quiet markets.
The first presidential debate in the U.S and the meeting between both members in and outside of the Organization of the Petroleum Exporting Countries are two key events that are being watched with great interest, with the potential to generate far reaching effects. Further, the plunge in Deutsche Bank shares contributed towards worsening the sell-off, pushing benchmark indexes towards the worst performance in the last three months.
The DAX 30 lost more than 1.5%, led by shares of Deutsche Bank. Germany’s biggest lender plunged 6.1% to an all-time low at €10.63. That sell-off was prompted after Germany’s Focus Magazine reported over the weekend that German Chancellor Angela Merkel had ruled out any state assistance for the bank next year.
Merkel also declined to help Deutsche Bank in its legal battle with the U.S Department of Justice. The DOJ previously demanded that the Frankfurt-based lender pay $14 billion to settle a probe tied to its sale of residential mortgage-backed securities in the run-up to the sub-prime financial crisis in 2008. The bank said that it was not willing to pay the claim and is seeking a reduced penalty to a more reasonable settlement amount of between $2 billion and $3 billion.
The Deutsche Bank sell-off also affected other banks on Monday morning. Shares of Commerzbank held the second position in the list of today’s worst performers, down more than 3% to as low as €6.02.
Other market movers included German mass media company ProSiebenSat1 Media which slid 2.93%, and Munich-based financial services provider Allianz whose shares declined by 2.67%. At the time of writing, not one company among the DAX’s 30 constituents was trading higher.
Fig: DAX 30 D1 technical chart
The DAX30 index created a gap down at the market open today, paring last week’s gains and heading for the 23.6% retracement support level at 10303.96. The price action is struggling near the short-term DMA 20 at 10421.43 and the market is expected to breach below this support, as the RSI index has just confirmed the downtrend by ticking below the 50 threshold. On the stochastic chart, the –DI has converged with the +DI line, consolidating the downside.
Buy Digital Put Option from 10443.00 to 10367.00 valid until 20:00 GMT September 26, 2016