Published 1st November 2018
The red count seems to be playing out. Global equities showed a firm reaction from their lows during the last week. The DAX index bounced off from the bottom of the pink trend channel. German equities are probably unfolding a countertrend bounce of intermediate degree. The rally is likely to last for a few weeks.
This assessment is valid unless we see a quick and sharp turnaround. Even that doesn’t necessarily imply that the black count is going to play out. A retest of last week’s lows could happen instead within the red count.
Last but not least, there is one thing that is quite important at this stage in the DAX. We don’t think that it’s likely but a waterfall drop could occur at this stage. What are the early warning signs of that? A broad-based decline across all indices worldwide. Moreover, a crossing of the lower pink trend channel resistance would occur on maximum momentum. Strength indicators would be most extreme to the downside since May 2018. Again, we don’t think that a waterfall drop will happen at this stage. Nevertheless, it is good to know about the possibility and early warning signs.
All in all, the DAX is likely to rally for the next few weeks within a countertrend bounce.