DAX

Briefly

Published 25th June 2018 & validated 16th July 2018

The German index is within a secular bull market trend. The cyclical swing within the secular bull trend peaked or is maturing. A trading approach will most likely outperform a buy-and-hold strategy during the next few years.

Market Pulse

Published 16th July 2018 

The past few days of trading have not brought any new evidence regarding the DAX index. Therefore, the analysis further below remains fully valid.

Published 12th July 2018 

There is a time to go long, there is a time to go short, and there is a time to go on vacation. Right now it’s time to go on vacation regarding European equity indices.

The German DAX index continues its price action in a complex manner. Our technical chart below remains perfectly valid. German equities could either swing into a final cyclical high or their cyclical high has been reached already.

We have to be patient in order to get more hints about the exact DAX Elliott wave pattern short-term. Fear of missing out must not stand in the way. A resolution to the upside will be most likely confirmed by another major European equity index. It will break important trend channels or important resistance levels. That kind of action will most likely provide some form of a more attractive risk/reward entry opportunity than we get right now. Similarly, a resolution to the downside post a cyclical top will most likely result into a recognizable motive wave. More important, the subsequent three-wave retracement is likely to be a sizable second wave. There are opening gaps left higher in the DAX, which get often targeted for example. That may provide a good entry opportunity for short speculative position for traders.

All in all, we are neutral on the DAX as well as on the other major European indices right now. We prefer to stay on the sidelines and wait for better risk/reward opportunities.

We have published a broad overview of European equity indices on SeekingAlpha. It gives our big picture of what we expect for the major European indices during the next years.

Published 9th July 2018 

The DAX Elliott wave pattern gets complex at this stage. There are plenty of possibilities that may play out eventually. However, the incomplete wave structure on several world indices as well as a couple of opening gaps on the DAX upside suggests that the German index will at least revisit the 13k level.

The June drop into the June low counts as a 3-wave correction from the May high. The subsequent rebound leading prices until today is too sharp for a fourth wave of an impulse to the downside. We could see here the beginning of a third wave to the upside instead. This is depicted by the black scenario. This bullish scenario might as well morph into some more sideways action before it bursts to the upside to another all-time high. The latter scenario is not depicted in our graph.

The alternative scenario is depicted in red. It shows a leading diagonal from the May top to the downside. This fits our introductory remarks in form of divergence versus other indices worldwide. Basically, it means that other indices reach a new high whereas the DAX fails to confirm that action.

All in all, the black scenario has slightly higher odds at this stage. However, we are talking here about something like 51% vs 49% odds. Nevertheless, fetching another spike into 13k looks more promising at this stage.

Short-Term Dax Elliott Wave Analysis

Updated 25th June 2018

We have warned about a bigger correction in the DAX on May 21st. Back then we assigned higher odds that the correction resolves to the upside eventually. A couple of weeks later, on June 4th, we warned about the possibility that a cyclical top occurred in the DAX already. We specified it on May 22nd 2018 (not January 2018!). We motivated that possibility due to our observations regarding the US President’s relationship towards Germany. As of now, that high has not been reached again. Moreover, the fear of a trade war is not fiction any longer. A trade war between the Trump administration vs China and the EU became reality. Multiple bullets have been shot during the past couple of weeks.

Our DAX forecast remains valid. Either German equities extend into another top as part of a final swing or we saw the cyclical top in May 2018. The latter scenario is portrayed within the red count. It forms an orthodox top. The May high is located beyond the end of minor wave 3, which completes a textbook impulse.

The black count interpretation is very similar to the red scenario. The only but significant difference is that this scenario sees minor wave 5 extending. However, that should happen rather sooner than later if it has any validity. The next support levels are around 12,300 and 12,000 points. We would expect a 3-wave fade around there if the black count is valid.

The trend remains to the downside short-term. Any bounce or reversal will be validated in conjunction with other major European indices such as the CAC40 or the Eurostoxx 50. They are closer to signaling upside extension than the Dax at this point.

Mid- And Long-Term Dax Elliott Wave Analysis

Updated 8th February 2018 & amended 5th July 2018

In the medium timeframe, the Dax index has completed a contracting triangle of cycle degree. It has started from the peak of the tech bubble in early 2001 and finished in 2011 with a breakout to the upside.

We interpret the DAX Elliott wave setup as a 1-2-1-2 sequence formation. A cyclical correction is likely to kick in at some point during the year 2018. It should have nearly the same magnitude as the 2015 correction if our interpretation is correct. Last but not least, a strong 3rd wave should follow to the upside after the correction resolves.

The alternative is a flat correction that takes the DAX into the 7k region. The negative case allows for a nearly 50% correction but requires a rather rare pattern after the resolution of the triangle. That’s a lower odds case. Basically primary wave 2(circle) and intermediate wave (1) would be replaced by intermediary waves (A) and (B) respectively. We’ll deal with this possibility later on if the rally since 2016 morphs into a more convicing 3-wave structure.

Germany has benefitted from a weak Euro as well as easy monetary conditions. The next major rally could be the result a combination of both real growth and inflation. This is in line with our inflation expectations for US Treasuries. There are overwhelming parallels in Europe.

Long-Term Dax Elliott Wave Analysis

Published 8th February 2018

We expect to see cycle wave V in the coming years. This should lead to a bull market for at least a part of the next decade. Triangle breakouts are usually swift. From a technical analysis perspective, a right look of the entire wave structure would develop if we see a cycle wave V in the magnitude of at least 38% in comparison to the previous cycle waves.

Technical Analysis