(!) DAX – The next recession!? + attention points!
מעודכן
Earlier this week I already posted on the S&P 500 - “A word of warning”. Today is no different. Although, the DAX shows a maybe even worse picture. And I am actually absolute not a "perma-bear"...
1) If you look at the red resistance line, drawn from the 2003 top through the 2007 market top & from there on you see that the 2015 top could have been called at the moment the chart hit that red line again. Guess where we are today? We are touching that red line again, and believe me – we will need a LOT of momentum if we ever want to breach that zone. And EVEN if we would break it, it would be a very momentary thing.
2) As if that isn’t even the worst part, if we ZOOM IN on the graph and just look at where we are now, we see more omens. We actually see a first left shoulder, a very clear head – by the book – and we are likely starting to form a right shoulder RIGHT now. The neckline can be seen as the white horizontal support line just beneath. Likely scenario here is that we will be forming a second shoulder (so some upward movement first) before we fall through that neckline & really tumble down to any of the next support levels – bloody. An alternative is that we already break the support line now – which would be a tad early, but this would more or less result in a same scenario. This downward break-out could recover however to keep forming the shoulder.
3) & if THAT wasn’t enough, guess what we are seeing if we look right at the top white horizontal line). We see a DOUBLE TOP, which is also incredibly bearish – by the book.
4) Looking at the yellow trend channel: in 2015, we got ahead of ourselves and jumped out of the channel, bumping into the red SUPERRESISTANCE line and logically fell right back to the yellow support line (also quite common in charts & channels). It even got that bad that we broke through the yellow support line, right into the 50% Fibonacci, & from there on, we formed a new temporary trend channel depicted by the white upward trend channel. But it didn't take long to get back into that yellow long term trend channel.
5) We were very optimistic again, going for a big burst against the yellow resistance line, & even touched the red SUPERRESISTANCE AGAIN. This obviously failed & we fell right back to the yellow support zone (sounds familiar?).
6) So what? What will happen next? Note that I am certainly not claiming that I can in any way predict the future. I can however make informed decisions based on risk reward assessments & evaluating probabilistic scenarios. In this case, you don’t need to be a math genius to figure it out: we are trading at the very top of a long term trend channel, we have practically no more logical room to keep moving upwards. Maybe there is still a short term 10% gain in the pipeline, but we have a lot going against us fundamentally as well (rising interest rates, tightening QE, etc.). Just looking at the chart should tell you an obvious story: there is a LOT OF RISK here now. Are you willing to take that risk?
7) For info on support levels / targets, please refer to the first comment here below (as the text box is full :-) )
8) Timing RS: see first update
Conclusion
I am not here to cast Nostradamic predictions, but I do want to point out that we are currently trading near a market top and that there is not much upward potential left in theory. There is however, a big cliff lurking around the corner, and the slightest bearish signal in the market might start setting of a lot of automated trading algos that could send the market plummeting in an instant. Have a look for yourself, and please make a reflection on how you want to take advantage of this piece of information.
DYOR - Not intended as investment advice!
1) If you look at the red resistance line, drawn from the 2003 top through the 2007 market top & from there on you see that the 2015 top could have been called at the moment the chart hit that red line again. Guess where we are today? We are touching that red line again, and believe me – we will need a LOT of momentum if we ever want to breach that zone. And EVEN if we would break it, it would be a very momentary thing.
2) As if that isn’t even the worst part, if we ZOOM IN on the graph and just look at where we are now, we see more omens. We actually see a first left shoulder, a very clear head – by the book – and we are likely starting to form a right shoulder RIGHT now. The neckline can be seen as the white horizontal support line just beneath. Likely scenario here is that we will be forming a second shoulder (so some upward movement first) before we fall through that neckline & really tumble down to any of the next support levels – bloody. An alternative is that we already break the support line now – which would be a tad early, but this would more or less result in a same scenario. This downward break-out could recover however to keep forming the shoulder.
3) & if THAT wasn’t enough, guess what we are seeing if we look right at the top white horizontal line). We see a DOUBLE TOP, which is also incredibly bearish – by the book.
4) Looking at the yellow trend channel: in 2015, we got ahead of ourselves and jumped out of the channel, bumping into the red SUPERRESISTANCE line and logically fell right back to the yellow support line (also quite common in charts & channels). It even got that bad that we broke through the yellow support line, right into the 50% Fibonacci, & from there on, we formed a new temporary trend channel depicted by the white upward trend channel. But it didn't take long to get back into that yellow long term trend channel.
5) We were very optimistic again, going for a big burst against the yellow resistance line, & even touched the red SUPERRESISTANCE AGAIN. This obviously failed & we fell right back to the yellow support zone (sounds familiar?).
6) So what? What will happen next? Note that I am certainly not claiming that I can in any way predict the future. I can however make informed decisions based on risk reward assessments & evaluating probabilistic scenarios. In this case, you don’t need to be a math genius to figure it out: we are trading at the very top of a long term trend channel, we have practically no more logical room to keep moving upwards. Maybe there is still a short term 10% gain in the pipeline, but we have a lot going against us fundamentally as well (rising interest rates, tightening QE, etc.). Just looking at the chart should tell you an obvious story: there is a LOT OF RISK here now. Are you willing to take that risk?
7) For info on support levels / targets, please refer to the first comment here below (as the text box is full :-) )
8) Timing RS: see first update
Conclusion
I am not here to cast Nostradamic predictions, but I do want to point out that we are currently trading near a market top and that there is not much upward potential left in theory. There is however, a big cliff lurking around the corner, and the slightest bearish signal in the market might start setting of a lot of automated trading algos that could send the market plummeting in an instant. Have a look for yourself, and please make a reflection on how you want to take advantage of this piece of information.
DYOR - Not intended as investment advice!
הערה
Point 7 continued) Let’s have a look at support levels and targets in case of a downward trend reversal. You can see that there are some Fibonacci retracements that I drew and that speak for themselves (e.g. Longer term 23,6% retracement at 11.571; followed by 11.000,40, etc. As stronger support lines, I refer to the light blue upward support line and the light blue horizontal line that connects the market tops of 2000 and 2007 (around 8300). As an extreme nadir, I believe we can look at the red support line to 6850. And if a systemic crash would ensue, the extremest I can imagine for now is the big white support, before the sun comes up again, at 4000ish. But then I would be speaking extremely bearish.
8 continued) If we look at the plausible left shoulder of the forming H&S figure, we can see it took around 6 months to form it. IF we are forming the RS now, we could assume that it takes a similar 6 months to form it… Could be.
And really: all the best in your future investments!
הערה
Ok guys, I know I mentioned a lot of bearish stuff here above and I still abide by it - but there is always the short term as well. Regarding that, I mentioned that I believe we will likely see a RS (Right Shoulder) forming first. As you can see, we just bounced off the support line and are seeing greenish candles starting to craft that figure.As you can see, we have a still decreasing MACD on the weekly, but a bullish crossing in the Stochastic Momentum Index ("SMI"). If you look at the three areas I highlighted in green circles on the "SMI", you see that each of those was followed by relatively strong upward movement. They were accompanied though by bullish signals in the MACD. For the moment, the MACD is still heading downward, but could result in another bullish cross, hinting more upward movement. And: we are already having a first green candle, which is great.
On the daily chart, we are actually having both - which is very bullish:
Furthermore, upward curlings in the RSI (purple line under the graph) both on the daily and the weekly - that's positive as well:
weekly:
daily:
הערה
Clearly going for that right shoulder pattern for the moment:On the daily it's a bit more visible:
הערה
For the moment still unfolding exactly as expected. I closed my long positions at 13.2K-ish more or less, as I explained in detail in this post:
We'll now likely keep forming that second shoulder.
הערה
Great to see the predication pan out. Hope somebody out there listened :)
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