Germany in the news: Market drops over 5% (UPDATES)

Big news in Europe starts off this post this Labor Day. German Chancellor Angela Merkel’s party lost weekend elections in her home state, stoking concern opposition is growing to bailouts for debt-saddled European nations. This in turn has caused the German DAX Index to tumble over 5% with only a few hours to go in trading. I will update this post after their market closes. But I do have a chart of the DAX Index for the past few years and you will clearly see that they have broken below the current lows and the implication is that our stock market will follow suit tomorrow. This would accelerate the drop and almost assure a drop below 11,000 again. Here's the chart of the DAX Index:

You can see that todays last data point is lower than the previous recent lows, implying a drop below the red line. Looking back over the years you can see this is an important level not to go below. Their lows correspond to our low of the timeframe when the Dow went to 6,400.

Again I repeat, this week is very important not just here in the US, but also in Germany as on Wednesday there is a vote as to whether they will support the bailout of the debtor nations in Europe like Greece and Italy and Spain. Then add to that news, we have the President's Jobs speech on Thursday and the markets will have a reaction to these events. Stay tuned!

UPDATE: 8:45am PST
From Reuters: "Italian economic growth is likely to fall short of the government's official forecast of 1.1 percent in 2011 and 1.3 percent in 2012, probably coming in under 1 percent, a senior government source said on Monday. "It will be very difficult for Italy to reach 1.1 percent growth this year and next," the official, who spoke on condition of anonymity, told Reuters."

Italy's stock benchmark FTSE MIB Index was down 4 percent, with UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP), Italy’s biggest banks, dropping 5.8 and 6.2 percent, respectively. Markets are getting very rattled in Europe.

Another Update will be given when the German market and European markets close.

UPDATE: 11:05am PST
Germany's DAX Index closed at 5,246 today, down 5.3% at the close. Following Germany's lead were other European Indexes such as France's CAC Index, down 4.7%, Britain's FTSE Index down 3.6% and Italy's FTSE MIB Index which was down 4.8%. This should send ripples in Asian markets tonight and our US markets tomorrow.

The reasons the stock market will rise this week!

Ok, this is what you have been waiting for, the resons the stock market will rise this week. First, President-Elect Obama officially announces his economic team today. This will boost confidence. In addition, the government has agreed to guarantee the Loan portfolio of Citigroup to the amount of $300 Billion and added $20 Billion additional funds from TARP. It makes Paulson look ridiculous because he had said there wasn't a need to spend any more TARP funds and that the he was successful in stemming the financial crisis and calming down markets. He now has to eat his words. But that is a small price to pay for getting it right.

Also, reason this week will see markets rising is that this is Thanksgiving week, and the last thing Retailers want is to see the stock market go down just before Friday, the biggest shopping day of the Christmas holiday.

And finally, markets abroad in Europe are showing very positive gains in premarket action here as did Asian markets last night. The world is linked together more now than ever.

So sit down and watch the markets rise this week and hopefully see your portfolio a little fuller than it was last Thursday.