DAX Index: Much more potential

Our earlier outlook of August and September has not altered at all. Furthermore, the sketched scenario is unfolding nicely. A large reversal pattern (H&S shaped) has been completed with the recent break below ~12000 (cloud and internal trend line) and a full swing down trend is in progress. Focus is on 10150 (minor) and 9965 (first major projection). Below that 9475 and even 8465 come into play on a 12+ month horizon.

On the upside, prices should not rally above 12050 for the foreseeable future. Risk/reward remains excellent. We have full short-exposure (equities) divided equally between the DAX and AEX Amsterdam.

  • Near term trend: negative
  • Long term trend: negative
  • Outlook: huge long term reversal, negative
  • Strategy: hold-short / sell rallies
  • Support: 10150* / 9965* / 9475* / 8465*
  • Resistance: 12050 / 12335 / 12670
  • Outlook cancelled/neutralized above 12335

Weekly chart DAX Index (Germany)

5 September 2018

Near term pressure is convincing and follows the significant deterioration of the past three months. We have seen weakening indicators, a new lower peak and earlier break below the cloud support. Now that (daily) lows around 12120 are taken out the market is definitely in a new bear trend.

Down side potential is substantial; projections comes in at 10150 and 9965 respectively, while retracement support come in even lower around 9475. On the upside, prices should not rally above 12670 for the foreseeable future. Risk/reward is excellent.

We have full short-exposure (equities) divided equally between the DAX and AEX Amsterdam.

  • Near term trend: negative
  • Long term trend: negative
  • Outlook: huge long term reversal, negative
  • Strategy: expand short-entries, sell
  • Support: 12120 / 10150* / 9965* / 9475-
  • Resistance: 12670 / 13333* / 13510
  • Outlook cancelled/neutralized above 12670

Weekly chart DAX Index (Germany)

 

19 June 2018

The outlook remains very bearish. Despite the recovery of the last weeks the market has failed to challenge the old highs while indicators remain lack lustre at best. Now that the near term outlook is generating a renewed sell-signal (double top, see inset in chart below), we are very confident the market is seeking significantly lower levels over the coming months. Best of all, stops can be maintained nearby at 13200 so risk is relatively limited.

Note that other European markets are varying somewhat in market phase, but all all bearish or exit-long as an absolute minimum. A major market turn is expected and we strong suggest to prepare accordingly.

  • Near term trend: negative
  • Long term trend: neutral (negative < 12000)
  • Outlook: huge long term reversal pending
  • Strategy: fade the rallies, build up short-entries, expand below 12000
  • Support: 12120 / 10150* / 9965* / 9475-
  • Resistance: 13333* / 13510
  • Outlook cancelled/neutralized above ~13200

Weekly chart DAX Index (Germany)

25 April 2018

Our outlook of 6 October 2017 is basically unfolding. The major and long term projection at 13333 have been reached and prices have been topping out around that level over the past weeks. The weakness of the past weeks has left a new lower peak on the weekly chart, leaving a probably Head&Shoulder reversal pattern on the chart.

We are generally not very keen on the pattern, since it’s ‘stand-alone’ reliability is mediocre and often poor in PL ratio’s). However, the current location and symmetry do increase it’s validity and importance considerably. Equally important, playing the formation early on leads to very friendly risk/reward strategies. We see no tactical need to wait for the pattern to complete (below the neck line) due to it’s location and broader market dynamics.

In short, we are entering on the short-side of the market with stops above ~12750<>12800 and anticipate a move below 11850 (neck line and cloud support) targeting 10150 (pattern projection) and the 162% extension level at 9965.

The combination of down side potential, low risk and above average probability (non-scientific, of course) make the DAX Index a perfect item for short-exposure.

  • Near term trend: neutral/negative
  • Long term trend: neutral (negative < 11850)
  • Outlook: major reversal and new down trend
  • Strategy: build up short-entries, especially below 11850
  • Support: 11850 / 10150* / 9965* / 9475-
  • Resistance: 13333* / 13510
  • Outlook cancelled/neutralized above ~12800

Weekly chart DAX Index (Germany)

6 October 2017

There is a conflict in trend dynamics on the near term and longer term charts. The near term outlook remains quite bullish with new highs and decent momentum. Also, the Wave counts suggest an extended Wave 5 count towards a whopping 16160! So for the near term holding longs with a trailing stop is probably best.

The medium and longer term outlook is a different story. Bearish divergence and the vicinity of major projections (@13333) suggest a probable end of the multi-year uptrend over the coming weeks. In the best case this leads to elaborate consolidation and in the worst case to a very significant sell-off. Too early to say at this point what will happen, but due to the potential draw down an exit-long is certainly warranted.

Combining the two charts leads to the conclusion that investors should prepare for an exit-long strategy with trailing stops or an outright return to cash-overweight portfolios. Due to current (pathetically) low implied volatility levels, buying protection (even on the longer term) is very cheap. Make use of this situation.

  • Primary trend: positive
  • Outlook: consolidation in uptrend, trend continuation is expected
  • Strategy: hold-long with trailing stops @ 12000 (aggressive) or 11530 (conservative)
  • Support: 12000 / 11530 / 10950 / 9475-
  • Resistance: 13333* / 16160*
  • Outlook cancelled/neutralized below 12000

Daily chart DAX Index (Germany)