DAX

Briefly

Published 25th June 2018 & validated 13th August 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 13th August 2018

Showtime approaching for Europe! Major indices have been selling off all across Europe. Germany was no exception. Price action took the DAX index near the contracting triangle support. The DAX could break below that support and extend the c-wave within a triangle (depicted in red). However, that’s not required as the entire triangle may complete within the next few trading days (depicted in black). If our analysis is correct, we are a few days away before a rally starts, which extends the entire cycle a bit further to the upside.

The pale green trend channel is likely to guide us whether we are correct with our analysis or not. A clear break of that trend should occur soon if the cycle ended in May 2018 already. We may get an early alert from the French CAC 40 if European indices reached their cycle high in May. The French are closer to their respective mid-term trend support. We are still favoring the black scenario slightly over the red. We expect to see another extension to the upside for German equities.

 

Published 2nd August 2018 amended 6th August 2018 (chart only)

The German DAX Index is developing as expected. It failed to reach the upper resistance of the probable contracting triangle pattern. Consequently, price structure develops further in a contracting manner. The current drop is a little bit short to be all of minute wave e(circle). We expect another up-down sequence during the next couple of weeks before minute wave e(circle) is complete.

Our base case is depicted in black. It has the highest odds and gets a bloody nose if the lower support line of the triangle (dotted line) gets penetrated significantly. The entire triangle pattern is most likely dead if the pale green trend channel gets broken. That kind of action shifts odds towards the red scenario, which is discussed in the short-term update below. 

Short-Term Dax Elliott Wave Analysis

Updated 26th July 2018 amended 30th July 2018 (chart only)

The German Dax index is probably tracing a 4th wave triangle. As a consequence, the German blue chips index has not gone anywhere since July of last year. That’s 12-Months of complex sideways price action! A resolution to the upside probably kicks in soon. Our base case needs another down sequence within wave e(circle) before the rally takes off.

The alternative scenario is depicted in red. It suggests that the complex sideways correction finished already. Moreover, the entire cycle is complete within this scenario. An Orthodox top occurred in May 2008. The Dax Elliott wave action since then is a leading diagonal to the downside.
The black scenario has a higher probability. Triangles are more common than double-3 corrections at this point. Moreover, all price action takes place within a long-term trend, which is depicted in green.
All in all, more upside is likely within both scenarios. We’ve mentioned earlier that there are some unfilled opening gaps around 13k points. These are very often at least retested.

 

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. A broad overview of what we expect from European equity indices has been published on SeekingAlpha.

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