DAX , update

August 9, 2011 Hamilton

The DAX dropped from 7600.41 to a low today of 5502.63, or 2097.78 points or 27.60%, much of it in a matter of a month. Put differently the drop has erased 2100 points of the roughly 4000 points gained over the last two years counter-trend rally, that is about 1/2!

The problem now is that this is not likely the end of it. Sure we could get a 800 point rally any time now but when all is said and done the structure of the drop is such that it cannot be finished at this point! The chart is weekly and does not show today’s low. It corresponds roughly with the bottom of the triangle in the middle of the A-B-C

One reason why Germany is doing so poorly is obviously the fact that much of the burden of holding the Euro together falls on it’s shoulder. It also benefits to a great extent of the present arrangement, the dilemma is do you keep it or go it alone.

DAX

August 5, 2011 Hamilton

We were correct in stating, the other day, that the DAX did not have the time to have a thrust up. Like all markets, not surprisingly considering the abundance of B-waves (see for instance Siemens, SI.) the DAX went down like a rock and now sits at about 18% below the top, having lost about 38% of the gains made since the lows in March of ‘09. Others have done worse, see below Zurich’s SMI.

Where from here? I think it is pretty clear that we had an A-B-C up,with the B as a triangle. This is a correction and therefore we should see a new low below the March low. Unless we are making a far more complex structure, perhaps a multi year triangle. For the moment that is of little concern as the present leg down is not complete. We still require a 4-5 of 3, and the a 4th and 5th wave to complete this down-leg. A reasonable initial target would be about 5100. That level is at the lowest point of the triangle B and also about a 60% give-back of the entire rally of the last 2+ years.

The Zurich index had gained roughly 2750 points the year after the low. It has been in decline for a year and 1/2 and has lost 1750 points or about 60%. That is a nice Fibo # and could signal that it is complete. However this is highly unlikely because the pattern certainly is not. In any case it is not unreasonable to assume that the DAX could also drop this much. Note that any chart using Swiss Francs as a measuring stick looks awful. Expressed in US dollars the drop would be a lot less pronounced.

S&P, DAX and the FTSE Athens top 20

August 2, 2011August 2, 2011 Hamilton

The top chart is of the S&P, the one below of the Frankfurt DAX and below that the FTSE Athens top 20. During the fall the S&P lost exactly 50% of its value. The DAX lost 69% and the Athens top 20, 76% Not precisely the same but in the same order of magnitude. Interestingly every single wiggle occurs in all three charts. This relationship holds for the first half of the rebound, then Athens goes its own way. Is it perhaps telling us something??

The SPX and the DAX continue listening to the same drummer except that the DAX is more robust. So far it easily exceeded the B-wave point on the way down, whereas the SPX has failed to make that high. Concerning the structure, both are undoubtedly working their way up in an A-B-C correction, that is a counter-trend move. In terms of symmetry, both could still forge their way up to the green circle; Athens is obviously complete and perfectly symmetrical. The SPX still has the time and could have one more spurt, perhaps as a thrust from a triangle. That is less likely with the DAX, which has decidedly broken a trend-line and there is no time left and there is no (finished) triangle. Also it would have to regain all the losses which i consider a fairly tall order. ( By the way, the difference in the red and green circles reflects how the individual A and C legs , and the “pause”in the middle are counted ).

Athens is a clear train wreck, and both the SPX and the DAX have outperformed to some degree. Many other markets have been far less robust. Normally one would expect a retracement in the order of 50/62%. The STOXX 50 may represent what is normal best. Here is it’s chart.

The yellow area represents the 50 to 62% range. Here too the circle is drawn with a view towards symmetry for the entire corrective structure, it does not show all points where C=A. Here the high occurred 5 months ago in March, which , by the way, was anticipated!

The 76% retracement is wrongly calculated due to the fact that the chart did not show the top near 4000. The blog can be referenced by going to the March 5th entry, or searching STOXX50.

DAX , once again.

July 7, 2011July 7, 2011 Hamilton

Why you should not own the DAX (anymore).

1. You are 500 points away from the upper constraint line and 5000 points above the lower one. This is a 10 to 1 ratio against you.

2. The most probable count is that we are in a flat that ultimately targets about 3000. Even assuming the unlikely event (not seen anywhere else) that we are in a huge triangle the target is still 40% down from here to about 4800.

3. For some reason the DAX is the ONLY index to have performed so well so far. Even the EWG(see below) did not get close.It just narrowly exceeded our expectation of 62%.

4. No other European index did remotely as well as the DAX . Four examples follow;

The Swiss regained just 62% but the CAC40 managed only 40%. Italy did little better and Spain has been slumping again for a year. It is patently not clear how, if all these economies “converge” to some common denominator Germany can keep this performance going. If convergence does not occur the end result might just be a lot worse. Looking at Holland’s AEX, one of the “have” countries together with France and Germany, which is still only at a fraction of its highs makes the whole thing even less tenable.

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