AEX, Amsterdam update from Jan. 25th

aex feb 2015

Two or so weeks ago 465 looked like a reasonable target. We have gone a little more sideways while the World decided that Putin really is a nice guy and that the Greeks are trustworthy and will surely repay every cent they owe. Now the target looks more like 475, give or take. On a normal chart we are there! Objects are closer than you think.

Using a normal, non semi-log chart as from Yahoo, we may actually be at the target after all, but it is no longer the messy expanding diagonal and instead has become perfectly confined in a channel.

aex feb 13 2015

AEX, Amsterdam, update, MIB

aex m jan25 2015aex s jan 25 2015

The AEX , being the oldest,  should be the wisest, and tell us where we are.  Most of the others, as for instance the CAC, DAX etc. have similar patterns except for the FTSE and MIB. We do not think that with all the ups and downs anybody can claim to be able to count this chart in a serious way, but with the benefit of hindsight it is possible to come up with something plausible. In this particular case a rather ugly looking expanding diagonal (read wedge) seems to fit the bill. It is a 5-wave structure with each and every leg consisting of 3 waves, whether up or down, and having an increasing amplitude (see beige lines). This one is really ugly.

     If that is the case than the triangles we have seen just about everywhere may be b-waves rather than waves 4. Assuming equality between waves a and c of this last leg up 465 looks to be a reasonable target, not including the always possible “throw-over”. That, by the way, would constitute a 30% increase , more or less, in three months. Paradoxically, Draghi who should get full credit for making this possible was less successful in his own country, see chart below of the Milan index.  Looking at the RSI and MACD the overall conclusion must be that we are awfully close to a top.

MIB jan 25 2015

AEX Amsterdam

 aex aug 12 2011

The AEX provides a good contrast to the DAX. Whereas the Dax at its most recent high was within spitting distance of its all time high, this was certainly not the case with the AEX, which was at around 50% of that high (some of the differences can, in a small part, be explained by how the indices are compiled). Considering that very little happens in Germany that does not pass through the Netherlands, it would seem implausible that the economies would be so different. The Netherlands have a good number of multinationals and other industries so the economies are not that dissimilar. It may be that the Netherlands are a good deal more global, they have one of the best and largest pension systems leading to disproportionate foreign direct investments. (the Netherlands are, for instance, the second largest investors in Canada, after the US)

Whatever, but the above chart clearly is NOT a triangle (for starters the lower boundary needs to have an horizontal or upward slope, it does not). The bear case here seems a lot more plausible, it could even be argued that the rally from the March lows is not a wave 2 but a wave 4 (there is no overlap). A drop now to 180 to the trend-line is no big feat. A drop to 100, where the 4th wave of previous degree lies, is entirely possible. At that level the market would have lost 86% of it’s value. A bear market of truly epic proportions!

Compare both DAX and AEX to the DOW;

Dow aug 12 2011

AEX, Amsterdam (the oldest stock exchange)

aex july 2010

The AEX is a reasonable proxy for most other exchanges. The CAC, the S&P, the FTSE, the STOX 50 or 100, Nasdaq and at least another half dozen exchanges that I am aware of. The ONLY clear outlier is the DAX; do not know why. All patterns are a first wave down followed by a wave 2 retracing a good portion of the first wave. (In the DAX essentially 100%) After that another wave down that is probable a first 5-wave down of the next wave 3. This promises a lot of downside to come. Because the DAX is the only aberration and all others point in this direction, I would favor that interpretation as the correct one.

Schematically wave 3 (of C ) should look something like this.

aex july 2010

Not shown are wave 1 and waves 4 and 5. At this point this is just a best guess EW scenario, time will tell if it occurs. In the mean time more and more evidence is surfacing that would indicate that it is at least possible.