This was our prognosis back in March of this year. Siemens then traded at around $120 fractionally below the high. Then it was suggested that this stock would probable be an excellent proxy for what the DAX might do, after all it is a very prominent company within the German economy. So far this is what has happened;
$81/$82 was suggested as a first stopping level, for the simple reason the that equates with the level of the B-wave, or pause in the rally from the lows of 2008. Notice, by the way , that the entire and larger B-wave is near perfect, with both legs almost vector equal, the second leg just slightly exceeding the ideal level of $142.
From a wave count perspective it is highly unlikely that the initial move down is complete. This is shown below in more detail;
At this point it is not entirely clear if wave 3 (in light blue) is complete or not. We did get to a low of $86.32 (and even lower intra-day outside US hours, so it is plausible. In any event at least a 4 and 5 is required to complete this first wave. The DAX, of course, already has gone beyond this $81 equivalent level and has declined more than the 61.8% of the entire rally, at least on an intraday basis (roughly 5120).
Wave 4 and 5 in the above chart have been drawn on the assumption that the entire drop since $145 in May or June is just wave 1 down! It is however entirely possible that we get an extension and that wave 5 takes us down so far that all of this will prove to be the entire C wave. Waves 1 and 3 have taken the stock from $145 to $85 or about $60. If wave 5, as is so often the case, ends up being equal to 1 and 3 combined and further supposing wave 5 would start around $100 then that would take the stock close to the ideal target of $30. The $10 difference could be accommodated if wave 4 becomes a triangle rather than an irregular flat as shown. The DAX would no doubt follow down approximately the same path. That this is not too far-fetched possibility is pretty evident if one considers that wave A in 2008 took the stock down $120 (from $160 to $40) in 10 months. A similar feat (see the parallelogram) now would take the stock to $145-$120= $25 around Jan. / Febr. of 2012 . If wave 4 starts in a week or so and lasts a little over a month we could be in Nov. by the time wave 5 starts. If 5 then lasts about the same time as wave 3 (2 1/2 months so far) the timing would be dead on! The whole episode would look like this!
Should the slight throw-over of $4 or so in April be repeated on the downside, the stock would trade precisely at $25. A quick look at GE tells us that this is entirely possible.
The moral of all this is that one should avoid the temptation of buying the “dips” because the market is so cheap. If things go as fast as the above scenario suggests you will not have a chance to get out before the bottom arrives and by then you will be a lot poorer. Once I was asked testily by a former “colleague” of mine what this has to do with Canada and the TSE. The answer then and now is that what the DAX does, the TSE does as correlations approach 1 in a bear market.
DAX, SI
One would expect the Dax and Siemens to be dancing to the same tune, more or less. There are slight differences but in the main they go up and down at about the same time and pause at around the same time. Stylized in the two charts above, both clearly made A-B-C corrections, retracing similar proportions of their losses into March 2009.
The Dax needs to drop to about 5120 to retrace 62% of the rally, for Siemens the number is about $81 . Both have a count that would suggest that wave 3 is about to complete. A month of sideways movement could then be expected for wave 4, and then 5 down should take both the Dax and Siemens to those targets which also correspond, roughly, to the level of the B-wave. In detail;
All of this is just wave 1 down!!!
DAX, SI
We have used the NY stock exchange from time to time as it seems to provide a better “picture” than either the Dow or the S&P. Back in April we got real vocal about the market as this is what it looked like at the time;
We marked the ideal target with a little green circle and “green spot”. The reason, obviously, is that the NYA appeared to be tracing out an absolutely perfect B-wave A-B-C where the A and C were going to be vector equal and the B a text-book example of an expanding triangle. Today it looks like this;
and in more detail;
This would be essentially the same for the DOW, S&P, Russell 2000 and many others, not however for the Nasdaq that made its top in July and not April. But regardless of the detailed count it is absolutely normal for the price to retrace to the level of the B-wave on the way up, in this case 6400.
For comparison purposes I have added the TSX and the DAX below. You can click on the charts to enlarge them and move them around. Notice that there is no point in diversification, if there ever was. All three, the NYA, TSX and DAX (and many others) have all done the same thing. They more or less doubled in a nice B-wave and now they will all drop back to the level of the B in that A-B-C. (The Dax has a contracting triangle instead of an expanding one, just take the lowest point).
Just as the Dax was a little ahead on the way up, it is now ahead on the way down. Remember that B-waves are corrective, that is to say they are counter-trend therefore it follows that in the not too distant future we should be trading below the March 2009 lows. The drop down shown, once complete, is just wave 1 !
Error ; in the chart r=A=B should read r=A=C
DAX, NYA, TSX
Today the DAX dropped 4+% in a matter of 18 minutes, I assume they were not impressed by Mr. Buffett’s impulsive interest in Bank of America. Others have it that rumors , quickly countered by new confirmations, of credit downgrades across Europe were gaining currency . An even less plausible argument was that since short-selling was banned all over Europe except for Frankfurt, they became the lightning rod for such nefarious activities. Whatever the case, it fits nicely with the count I had in mind for the DAX as shown in the above chart. There are a good number of variations to this theme but this is roughly what I would expect. The (intermediate!) low should be around 5100 to 5000. The risk is that things go faster and lower.
DAX
Just to make sure that my bullish comments are properly understood, I am bullish but only for five hundred points or so. Next BIG move is still down, down a lot and this may only be the beginning. Cash at 0% might just be the bargain of the century.
DAX
The DAX moved up about 4000 from the lows, at today’s lows of 5345 we are very close to having given back 61.8% of that (another 150 points). Furthermore , stylized we are at the level of the B-wave and also have completed 5-wave move down from 7500, the July high. From the April high of 7600 that is not yet the case. However given the position of the RSI and MACD chances are that a solid rally will be the next big move. The MIB, Milan is also very close to a critical point having given back almost all of the gains over the last 2+ years.
The wave count here more closely resembles a 5-wave move for the entire drop from February , one more bad day and you are there.
Longer term we should go lower but the intervening rally could be rather violent.
DAX, MIB
The DAX should drop further, the structure to date cannot possible be complete. At best just the a leg could be complete but even then as a minimum we should get a b and c.
The DAX has an interesting chart in that no other major index looks anything like it. Of course they all have the same ups and downs but they do not have this very distinct triangle pattern. That this is unique to the DAX is perhaps a hint that it is incorrect, but one must keep an open mind at all times. A triangle has at least 5 waves, 3-3-3-3-3 (in some cases it extends). All the waves in this chart appear to conform to the a-b-c structure for each leg, except wave B, the second one. It could be a 3-wave affair but superficially it certainly looks more like 5. If that detail is overlooked the triangle, so far at least, is legitimate. The respective sizes is also within the normal parameters.
E is not yet complete, it may fall short of a normal target or it may exceed it. Normal would be about 4500, the absolute low would be about 3600. The alternative count, which applies to almost all other indices would call for a much lower drop. Just something to keep in the back of your mind.
DAX
The DAX dropped from 7600.41 to a low today of 5502.63, or 2097.78 points or 27.60%, much of it in a matter of a month. Put differently the drop has erased 2100 points of the roughly 4000 points gained over the last two years counter-trend rally, that is about 1/2!
The problem now is that this is not likely the end of it. Sure we could get a 800 point rally any time now but when all is said and done the structure of the drop is such that it cannot be finished at this point! The chart is weekly and does not show today’s low. It corresponds roughly with the bottom of the triangle in the middle of the A-B-C
One reason why Germany is doing so poorly is obviously the fact that much of the burden of holding the Euro together falls on it’s shoulder. It also benefits to a great extent of the present arrangement, the dilemma is do you keep it or go it alone.
DAX
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