Here is a possibility. However it could be that 3 ended at about $12.50 and we are already in 5. Not at all that confidant about this but my gut tells me this might just be good enough. Remember that making money is all about not losing it. My inclination is to call it a day.
If you look at a number of previous blogs you may have noticed that in our humble opinion the DAX ,the FTSE, the TSX and the DOW could all be on the proverbial cliff. This could be NOW or closer to the year end which is just 8 trading days away. For some reason markets do often turn at year ends (think Nikkei in “89). But just to confirm this possibility it might be worth looking at the Tel Aviv 100 index. There are a good number of reasons to chose Tel Aviv. First of all they are right in the middle of all the Middle East hotspots , the Arab Spring in Egypt, problems in Syria with a recalcitrant ruler and Iran tinkering with atom bombs. Secondly , as a people they are extremely innovative, necessity obviously being the mother of inventions. And , as a people, the are solidly linked to the US, making more than half of all contributions to the Democratic party. All of this presumable leads to a somewhat binary outlook which, one would expect to see reflected in the exchange. Well, think again, here is the TSX;
I have calibrated the size the size to be equal to the Tel Aviv chart, this way you can enlarge them and move them around to better compare the two. In almost all respects the two could not be more different. Toronto has none of the fun loving, hedonistic traits of Tel Aviv. We do not expect to get embroiled in a war with any of our neighbours anytime soon and as far as innovation is concerned we are perfectly happy to sit on our laurels on account of insulin and the Canada arm. Nevertheless the two charts are, for the most part, completely identical (apart from the amplitude of the swings). The Tel Aviv chart is 3 ticks away from a 61% retracement and both the RSI and MACD are behaving badly. The only , minor, fly in the ointment is that wave 1 down is not clearly a 5-wave move but that can be remedied by shortening the first leg and lengthening the last. So, here we have another index that is warning that a smart turn could occur any moment.
This may be it. It certainly looks like a nice a-b-c correction that could be complete. Tomorrow we will have the Fed. at 12.30 o’clock. According to a Bloomberg article 48 out of 49 economists believe the Fed’s FOMC meeting tomorrow will announce additional easing on a massive and open-ended basis. This is the definition of insanity. If something does not work , keep doing it in the hope of a different result! The Fed’s balance sheet is expected to reach 4 trillion in the next little while. All of this largely due to the double and contradictory mandate of price stability and full employment first mandated in 1977 just 36 years ago and never tested. Then there is the fiscal cliff which is little more than a red herring on a similar scale as Y2K. The slightest disappointment from these two factors or from any other issue could do the trick. The high today was 13306.
Both charts are the same except that the one on the left is a 5-year chart and the one on the right a 1-year chart. Just to remind the reader, the Dax is a total return index that is not directly comparable to other indices that are compiled on a simple price bases. A few days ago I mentioned that the Dax had made a new high since the lows of the “Great Recession”, this was incorrect and we still have about 20 points to do that.
Clearly, in the big picture, the Dax has traced out an A-B-C rebound and has accomplished very little over the past 9 months. The A-B-C follows the pretty standard 5-3-5 structure in which the C is an exceptionally well formed diagonal (wedge) with the proper 3-wave subdivisions and the usual overlap between waves 4 and 2. Overlap can only occur in this kind of wedge and ergo it follows that it must be one!
The (possible) message to take from this is that like the DOW, the TSX, the FTSE the Dax also sports an overall pattern that screams GET OUT NOW. The wedge that starts in Sept of 2010 at about 5000 (not shown due to limited choices with Bloomberg charts), has the nasty characteristic that it normally retraces back to the base making 5000 an initial target. However, as A-B-Cs are invariable corrective structures, a drop below the March, 2009 lows should be anticipated.
To put this in perspective we have added the STOXX50. The highest point on this chart (not the index itself) is at about 4600 and the present value is at 2600, consequently this index of the top 50 blue-chip companies from 12 different countries in Europe, is still down by 41%
Also shown is the STOXX600, then (June) and now charts;
The call was wrong as it did not anticipate the long drawn effects of QEs etc. The damage is minimal in the overall scheme of things.