TSX etc. update

tsx 20 october 2017

We had this interpretation in our previous blogs, either a series of 4-5s or, more likely, a diagonal triangle 5th wave.  This is a long chart and therefore does not lend itself for precise predictions but our take on this is that we are about to peak and that a dramatic drop is straight ahead as that is a “diagonal” which invariable retrace their entire advance. In this case that would amount to roughly a 2/3 loss from whatever peak lies ahead.

djia 20 oct 2017

The Dow is going vertical, and if anything, confirms the possibility of a major top.

DAX update.

The usual then, March 4 , 2015, and now and now charts;

DAX mar 4 2015 bDax june 4 2017

dax june 2017 bc

The Dax is, ofcourse, a total return index so contrary to, for instance the Dow, the value of the Dax should increase by the dividends and the price appreciation of the stocks. It should therefore record relatively higher values than most other indexes.

Recently I was reading somebody else’s take on the Dax. The argument was that we are in a contracting diagonal triangle, shown in red in the semi-log chart on the right. This may well be correct but it differs from what I thought was going on some two years ago, which is a triangle with a thrust to slightly under 12000. Initially that worked out quite well as the Dax did turn at about that time and dropped some 5000 points or >40%. But then the Dax turned around again and recouped all the losses and then some. One explanation could be that the “thrust” having started with a 1-2, 1-2, only completed a wave 3 and needed a 4 and 5 before completing.

In any event looking at it today, I still prefer the triangle interpretation but that has become somewhat irrelevant as regardless of whether or not the diagonal or the triangle are operative, the Dax is very close to peaking. The triangles mouth measurement, applied from the low point of the e-wave (about 8000 points) suggests a peak at around 13000 to 13250. Under both scenarios, as always, the ultimate target is the level of the 4th wave of previous degree or roughly 2000. When is always a little more difficult but this index should turn soon as in days or weeks but not months.

By the way, had you bought right at the top of the tech bubble in 2000, your total return to date is still less than 4% per annum. That includes the dividends of about 2%!

DAX vs EURO

dax vs euro

We happened upon this particular chart on Bloomberg that we thought is instructive in these modern times in which QE, in one form or another, is the rage. Currency swings have been around for a long time and were often larger in magnitude than they are now. For instance in the mid-eighties US$/DeutschMark moved from 3.50 to 1.50 and back again in a little over a year. Sterling had similar swings earlier and our own Canadian dollar has moved from 1.04 to .61 to 1.10 against the US$, albeit over an appreciable longer period of time. Yet the respective stock markets did not appear to have the large gyrations they do today. Perhaps this time is different as most capital mobility constraints have long gone and we now have a huge pool of “homeless” (hot if you prefer) money sloshing around.

    The recent  rise in the Swiss Franc caused by the Central Bank abandoning the currency peg, led, initially at least, to a corresponding drop in their stock market, see below;

smi march 17 2015Swiss franc march 17 2015

Because one event occurs immediately after the other we will use the post hoc ergo ….. fallacy to assume there is not just correlation but causation, even if in this particular example it seems to dissipate rather rapidly to contradict that same assumption. Debasing the currency is, by the way, an excellent way of making the rich richer and the locals poorer.

Back to the DAX. If you are wondering what the leading stocks were to push the Dax up, they are Volkswagen, BMW and Daimler (Mercedes), all three big exporters and all three from an industry that was down and out not too long ago. Time to buy Peabody Energy (BTU) perhaps???

DAX, another take.

dax  mar 4 2015 sDAX mar 4 2015 b

The Dax’s performance is absolutely fascinating. At the recent high of 11465 it was up 37% in 4 1/2 months. In a very crude way I have figured out that there were only three previous occasions where the Dax may have performed in a similar super bullish fashion. The little purple arrows, all equally long (but this is not a semi-log chart!) indicate where and when those events might have occurred. In every case it would have been a 5th wave ( but not always the same degree). In both the two previous occasions the advance is immediately erased! They are separately shown below;

DAX mar 4 2015 i

Only the one starting in late ’99 and early ‘00 is comparable in duration and size (smaller in absolute terms but bigger as a percentage). It too appears to be a “thrust” out of a triangle and peaking just above the apex. Note that after that peak the Dax has it’s biggest drop ever, both absolute and as a percentage, losing roughly 3/4 of it’s value.

     Will history repeat itself ? Mostly it does as otherwise pattern recognition would be a useless endeavour, which , perhaps , it is.