Overnight the Swiss market dropped from 9277 to 7932 or about 14.4%, but that is in Swiss Francs so the only investors that are caught with their pants down, so to speak, are the Swiss themselves. Foreign investors get roughly the same amount back as a result of the appreciation of the Swiss Franc. For them nothing much changes other than that a vacation to St. Moritz will cost an even bigger fortune.

Was this all predictable from an EW perspective. Yes and no, see our previous blogs. But with hindsight it all fits pretty well. What we are looking at (in Swiss Francs) is a, give or take, 10+ year flat. Appropriately called that because in the end you end up where you were after the first down leg. The structure is basically a 3-3-5 A-B-C. We started the C overnight. C’s are always 5-wave moves.

The intervening up-leg , the B-wave, subdivides in 3 waves, an a-b-c. Often the c is 1.618x the a and in order to be flat it should end approximately at the double top level. It does all that! Furthermore the 5th wave of c of B is very often a “diagonal” (in English a wedge). In this case it is an expanding wedge as the amplitude increases as it nears the end (see our earlier blog on this aspect). Notice also the overlaps that can only occur in this pattern.

All this does not bode well for the Swiss, and with it , other markets. There are few reasonable alternative counts. The most obvious one would be that we are in a 5th large up wave from the lows of the great recession. In that scenario the overnight drop is the beginning of a 4th wave which might go to 7400 but not below 7000. Then the 5th of the 5th would take us to new highs around 11000 or so. This might be a possibility but it is not a good basis to be long this index.

Remember the fabled gnomes of Zurich? The country with the highest possible level of probity has undoubtedly been Switzerland, right from the days of Wilhelm Tell – the straight-shooting archer -  to this very day. That may change before this day is out. The Swiss referendum vote on the return to some form of watered down gold-standard appears to have failed. This will have some impact on the gold markets tomorrow. Conversely the SMI should do very well as the Swiss central bank will not be constrained by gold from manipulating the exchange rate and with that the stock markets. Here is what the SMI looks like today;

Both charts are the same Bigcharts except that the one on the left covers a longer period. The EW patterns shown are not necessarily the only ones possible but they are, in my view, the most probable or plausible. For those that are not particularly fond of EW, that is the vast majority, I have also added a standard Head & Shoulders pattern, which, by the way, calls for a downside target below 4000 in much the same way as the EW interpretation does. So when the kids ask are we there yet ?, the answer is yes, close enough. You have a few hundred points to the upside and 5000 to the downside and an index that has done very little for the past 17 years but moved by about 29% in the last two months (see below).

Once again we are confronted with a situation where the stock moves over the past 16 or so years can be interpreted in different ways. The, to me, most acceptable labelling would have the top in 2007- primarily because the move into that top looks like 5 waves – which would make the rise from the lows of 2009 a wave B. B waves can retrace the entire preceding down move, they can exceed that or they can fall short of reaching the “double top” level. Presently we got to within 500 points or so of double topping so that does not add any further insight.

Alternatively (in light red) the top has yet to be made. The wave 4 would have started in ‘98 and ended in ‘09. The present leg up would either be a normal 5 wave affaire (needs a 4 and 5) or a wedge (essentially complete).

Interestingly the implications of both interpretations are essentially the same and therefore the distinction is, other than for EW purist, immaterial. Either way the next big move should be down.

P.S. The Head and Shoulder people must be salivating just looking at this chart,see below;

The Swiss Index (Zurich) has one almost inescapable problem and that is a very strong currency. Just as Zimbabwe’s stock market was the best performing a few years ago so also is the Swiss market one of the worst. Of course they are also fairly big in banking, which cannot have been all too helpful with bank secrecy being challenged almost everywhere. Whatever the causes, the EW patterns are as clear as a bell. The second top is THE top and from there we have the great recession drop good for almost 60% and now we have the a-b-c back up. So far it has retraced about 50%, it could go higher yet. This whole pattern is very symmetric and the next big move should, as usual, take the index back to the 4th wave of previous degree around 3500+. Time will tell.