I - Distance to 21W ema (first chart)
The chart plots
- Weekly candles
- 21 week ema
- 21 week ema + 14%
Extracts:
- DAX reaching the 21w ema + 14%.
- The 21w ema+14% has never been reached in the last 15years.
- When it was reached in 1997/2000, it was an area of resistance.
- In 97, 98 and 2000, it has had a tendency to hug it for 1 to 4 months and climb another 11 to 23% > Abnormal strength tend to call more strength.
- The 21w ema is currently climbing at 8% per month – The resistance is strong but it is moving fast.
- 97/00 was a special period for the market: USD strength, end of 25year rally, Tech bubble, Multiple explosion, euphoria.
II - Max rallies without a correction of 8%:
Aug96 + 40% - 8 months > 8% correction – 4 weeks (key breakout in Jan 97 – Historical Inflexion Point).
Apr97 + 39% - 3 months > 21% correction – 3 months (strength after 4 weeks correction).
Dec97 + 34% - 3 months > 8% correction – 2 weeks (strength around year end).
Apr98 + 26% - 3months > 38% correction – 3 months (strength after 3 weeks correction).
Oct99 + 38% - 2months > 9% correction – 1 week (breakout after a 10month correction).
Jan00 + 27% - 3months > 72% correction – 3 years.
Currently DAX is up 32% over 3 months with no correction greater than 5% over 1 week.
It has been stronger by 6/8% 3 times out of 6.
Note: 5 out of 6 rallies lasted less than 3months before a decent correction.
III - Max full swing rally (including small bumps of 10%).
Oct92 + 60% - 15 months.
Apr95 + 133% - 27 months – That is a historical outlier on many indices.
Oct97 + 77% - 9 months.
Oct99 + 58% - 6 months.
Currently DAX is up 48% over 7 months with one intermediary correction.
DAX is 10% away from the strength achieved in mar00.
Many great swings find impulsion in October like this time... The duration can be anything between 6 and 27month (not very conclusive re timing).
All factored in, I think DAX could end its rally after another 6month, potentially 15% higher.
IV - Yearly ATR study
Except for down years, DAX has currently the greatest amplitude in point it has ever had: 3000pts (but that is not percentage adjusted).
In percentage:
- The amplitude this year is 32% (when the average of 10 year has been 20%) already matching 2013 after 3 months.
- The only year that was very strong on the up side was 2009 with 66%.
- Note: the last 3 months in 2000 had corrections of respectively -11%, -7% and 5%. It climbed 26% in that period (less than the current 32%).
Conclusion:
- There is potential for an extra 10/15% but there is strong speed resistance locally (3rd chart).
- I would not chase higher as I am looking for an 8/10% correction which has a decent probability.
- Not the topic of this specific search but DAX is boosted by EURUSD weakness which is itself on support (in the area).
- Note: DAX is volatile. This analysis is a high level one: Tolerate 1/3% leeway.
Probably a good time to spend some premium on a naked put for 5 weeks.
