DAX and EWG (repeat)

DAX aug 12 2014ewg aug 12 2014

Here we have the DAX, Germany’s main stock index and the Morgan Stanley IShares EWG. G, of course, stands for Germany. Why both? Well, I have noticed that often comparisons are made between the DAX and other indices , for instance the DOW, without regard to the type of index. The DAX is not some sort of über index that outperforms most of it’s peers, instead it is simple a total return index as a result of which it will normally show a higher value at most points in time. It has a base in 1987 at 1000 and for each year that passes it adds the dividend to the capital gain/loss to come up with a value. As with the DOW, there are 30 stocks in this index most of which are also represented in the EWG.

Presently the yield is roughly, very roughly, 4%. Since the highs of 2007, seven years have passed so, applying the above, very roughly again, the DAX should be higher by about 28% than the EWG is, not including compounding. In fact it is!

Having established that, what does it matter? A lot. Using the DAX Canadians are misguided into believing that their economy is inferior to that of Germany and that the proverbial  “Wirtschaftswunder” has passed it by entirely while we were building F150s instead of Benzes. Not so as you can see at a glance on the chart of the TSX;

TSX aug 12 2014

When the TSX is compared to the EWG, and not the DAX, the TSX actually outperforms relative to the 2007 (or 8) peak. You will notice that the two charts (you can move them around) are, again roughly, identical and both are clear B-waves that are signalling that a wave C is just around the corner. However, this time, it does look as if Germany is in the lead.

EWG, Germany iShares update

ewg feb 25 2013

The DAX ( a total return index!) is hitting a new intermediate high today in celebration of the Bank of Japan’s appointment of a more flexible governor and on the possibility of a ex-communist winning the elections in Italy.

If you look closely at this chart and compare it to either SU or CNQ in the previous blog you might start wondering if these are not German companies. How does SU GMBH and DNQ sound? Simple put, all are on the same trajectory and under EW the direction is down. See also previous blogs for EWG.

EWG , Germany, update

Predicting markets has become rather easy, all you need to do is count the number of days and multiply that by 50 points or whatever and you will know where the market will be at that time. Any problems along the way will be swept under the rug, legislated out of existence or simple ignored by the markets spin machine. But , here is Germany , then and now;

ewg june 17 2011ewg jan 25 2013

The then is from June of 2011, so about a year and a half ago. Now is now.  These charts show the very essence of Elliott wave. Sequences of 5 waves are always pointing in the then prevailing direction of the market. 3 waves, on the other hand, are always against the prevailing direction or counter-trend. Both the drops in 2008 and 2011 are 5 wave sequences and as such they define the prevailing direction as down. Both A-B-C’s in 2009/10 and 2011 , roughly, are counter-trend, in this case up. The logic behind this is that the human brain is wired in such a way that if we do something we like we take our time doing it. When we are doing something we don’t like we are guided by our “flight or fight” instinct, which is far more crude and abrupt (not necessarily in time but in the complexity of the structure!). So what we have is a main trend down, twice confirmed , followed by two big bounces.

Furthermore the EWG demonstrates the concept of “fractals” very well. This is when similar patterns recur in different sizes (degrees). Here you will notice that the big drop and rebound, from 36 to 12 back to 29, is repeated pretty well in an identical way in the next one from 29 to 17 back to 25. (See also blog on RIM for fractals). Right at this moment we are right on the downward sloping line connecting the three tops; next big move should be down. By the way, on shorter term charts both the RSI and MACD are also pointing down.