It has taken almost two months, longer than we would have thought, but now it certainly looks like this index is ready to go. Today we overlapped in such a way that we have to assume that this last corrective move is over. This implies that we are in the third wave which is normally the most exciting part. Given that wave one was roughly 3000 points we would expect wave 3 to travel more than that. We will see what happens.
This is the Dax, that is Frankfurt, Germany index. It is a total return index and consequently is not directly comparable to others that do not include the dividend. These two are the big picture. Below is the small picture;
This is time consuming stuff and I do not have the right charting equipment, but nevertheless this may add some confidence that we are, or were, at a top of sorts. Furthermore, I am not at all confident that there actually was a triangle so using the channel I start it in 2009 rather than 2012. By the way , this index from the 2000 peak to the recent peak is up roughly 77% by my calculation. Take away a 2% dividend over 18 years would leave a capital appreciation of just 41% or a little more than 2% per annum. A lot less than the Dow etc.
It now looks like we completed an initial first wave down – either a wave 1 or A – followed by an irregular a-b-c correction back up. It should be complete soon. Then wave 3 or c should start. At this time I would very much favour a wave 3, etc,etc. Ultimately there would be little to stop this before the entire uptrend from 2009 is reversed. Time will tell.
We all remember the “Intel inside, PENTIUM” logo that used to be stuck on the outside of every computer, lap-top and so on. Not sure if it is still inside today but clearly the stock is reaching a significant point in its life.
It has, or is about to, retrace a Fibo 61.8% of its drop from the highs of the tech bubble. Some of the more pedestrian technical indicators have been lagging the price and may be signalling a turn ahead. Most importantly there appears to be a diagonal forming this year. It may not be entirely complete – think throw-over and so on – but it is getting very close. The pattern calls for a drop to about $42 which is roughly 20%. That is a minimum expectation.
Just to complete the parade of indices, here is the Nasdaq. We have a picture here of two vector equal downward legs in a row with an intervening a-b-c . One could be wrong but the conclusion of least resistance is that this is a running flat, 5-3-5, running because it is slightly upward sloping. This alone gives us cause to be very careful in wholeheartedly embracing the bear scenario at this point in time. This is particular so because the moves in the Nasdaq are pretty large and not just marginal increments. Each down leg constitutes roughly 12% so there is still a long way before a new high will be reached, if at all. The bounce from the second low looks to be corrective for now, arguing the opposite!
As usual time will tell.
An example of this structure can be found in RDS.B Royal Dutch to mention just one. This one is downward sloping. MS is another;
