DOW , TSE and DAX (skip this if you do not care for EW!)

January 26, 2011January 26, 2011 Hamilton

EW has many drawbacks. You can take it too seriously and than you can be perfectly right but 20 years too early which does not put food on the table. Also these markets seem to be moving a lot more , even relatively, than they used to. Looking at the DOW, it has travelled about 19,000 points in the last ten years. It took the Dow more than a hundred years to get to 1000 and it basically stayed there for 26 years! Counting the waves is an art and the results are often controversial and restated years later. For instance, at one point in time it was thought that the 1987 crash might have been the elusive end of the 5th wave. Clearly it was not. Internally there was dissent in Gainsville , Prechter’s home town when one of the top gurus did not believe that the “tech crash” was the big one. Problem is this stuff can be addictive so you keep trying.

The chart on the left shows the drop in the Dow and the rise back up. The initial drop appears to be 5 waves but in my opinion it can be counted just as easily as a 3 wave a-b-c. Typically 5 waves announce a zig-zag (after a relatively small rebound say 50%, you go down again) whereas the 3-wave structure calls for a flat (where you return close to the top and only then go down again). As a result my guess is that the purple scenario counts best at this time given the size and the duration of this retracement. The TSE and the Dax, below, best fit that specific count.

The TSE strongly suggest that the latest top, that is the one in 2008 was THE top, and not the one in 2000 (which is the case for instance for GE). The Dax is less explicit about this issue (it is a semi-log chart!) as the two tops are at about the same level. In fact that chart might even suggest a triangle, but that does not fit with the others as it would imply a different degree. This is the case with the black and red scenarios which assume that we are already in a new bull market- there are numerous reasons why this is highly unlikely.

Make a long story short we will stick with the purple count. Click to enlarge.

DAX, all three scenarios

August 2, 2010August 2, 2010 Hamilton

For those that are interested in the EW application to the DAX, here are the main 3 possibilities that I can see at this time;

The first (blue) is the bullish scenario. It does not rhyme very well with any other market and seems to contradict the “big” picture. Also wave c in a triangle is usually the most complex one which is not the case. The next bearish scenario (green) is that the triangle actually does exist but is preceded by an a-b-c wave A, suggesting that a large flat is in the making. This scenario is bearish but not dramatically so, as once the flat is finished not far from the recent lows the next big move is higher. This triangle still needs at least a d and e wave so there will be a few more months of essentially sideways movement. Ultimately the correction will last to mid 2011 before the bear market reasserts itself. The last (purple) scenario is the real bearish outlook. Next big wave should be wave 3 of 3 down, usually the most dramatic part. There are a few minor imperfections that make this outlook not totally elegant in a EW sense, but we will overlook that. Note that this scenario will be negated if the DAX climbs above 6341 , just 40 points away.

By the way, the Dow came to within 2 points of 1694, the 61.8% retracement I calculated this morning. Perhaps it means some thing, perhaps not, but interestingly both the Dow and the Dax are at critical junctures.

DAX update

August 2, 2010August 2, 2010 Hamilton

Here is the longer term bearish case for the DAX, from about 8100 it dropped to 3600, just a little more than some other markets and it did so (arguable) in 5 waves. We know that 5 waves never stand alone hence the expectation that the next upward correction would be just that , a correction. Like most other markets the DAX also managed its way back to about the 62% retracement, almost precisely what the S&P, TSE, FTSE and a half dozen other indexes did.

Lately, for almost a whole year, this index has not gained very much falling back to levels that had been reached already by October last year. Obviously the momentum is pretty well dead, furthermore the overlaps that are occurring every 3/4 months make it next to impossible to count this action as impulsive! A triangle seems to be forming which would suggest that we get one more spurt up (about 600 points) in a thrust. This does not make sense in the bigger context so a series of 1-2, (1)-(2) etc. could be what is happening. We should not trade above 6400 or so to keep this possibility alive. (these charts are semi-log!).

Abbey Joseph Cohen is calling for 1250/1300 by year end on the S&P, presumable Goldman is long.

DJIA Update

July 29, 2010July 29, 2010 Hamilton

Just a quick update. The red and purple possibilities shown earlier on either the Dow Jones or the S&P are both in the running (the blue one is dead). Essentially this cannot any longer be a series of 1-2s considering the overlaps, but depending how wave one down occured we could be looking at a big a-b-c counter trend correction (red) in which the c wave is becoming a wedge (which has to be 5 –waves). In the purple scenario wave one is at least a month longer in duration and the a-b-c correction correspondingly shorter. Here the c wave also need 5 subdivisions. So , in both these scenarios we should top out soon. 10625 , or thereabouts is a good target as it represents a 62% retracement (more or less) for both waves one. Given the proximity of the month end etc.etc. the possibility that we already reached the high should not be excluded!

The DAX is just a hundred points from its all time high. Perhaps the recent drop in the level of the Euro has made this country’s economy that much more attractive (they are at least untill recently, the worlds largest exporter) . Others, like the FTSE or the STOX50 and many others are similar to the DJIA

Share this:

Share this:

Share this:

Share this: