Now that Stockcharts is updated we can show the DAX properly. Apparently it was also the 25-year birthday of its existence, what a fitting moment to peak. The chart below shows the performance over that period;
It should not be forgotten that the Dax is a total-return index and includes dividends etc.
This software company has done extraordinarily well and may even continue to do so, after all it goes up by about $100 per year. Last April we thought it might be a sell but it definitely was not. Now, once again we think it should be sold. It was a great investment but that is the whole point. If you do not take it, it does not count.
Our call today is based in the last few months of trading that very much resembles a wedge, these are ending structures. Beyond that the P/E is at a ridiculous level, the MACD has turned months ago and the RSI is about to go into overbought territory.
The DAX was up by about 260 points or so this morning, that is more than 2.5% (you need to hold a 10-year bund for about 4 years to get an equivalent return!) The peak was at about 10704, Stockcharts does not operate on a 24 hour basis so that does not show in the chart; it is approximately where the red line runs.
We had identified the triangle sometime ago, see previous blogs, but did not know exactly what would cause it. Delayed exuberance for Draghi’s opening of the European floodgates of money, super QE. Anyway this triangle is either a 4th or a B, we prefer the 4th but do not exclude the possibility of a B (problem is that we have to be able to trace a lot of waves before this to find a wedge). In any event if a 4th wave we are presently above the target of about 10600. Ofcourse the “thrust’’ could be bigger but that is not a reasonable expectation. In the event this is a B-wave the C could continue higher as indicated by the grey arrows. That could go another 500 points. We are presently perpendicularly above the apex which makes for a good time to peak.
For some reason EWG is NOT following this script. It looks more like a rather bearish 1-2, 1-2.
Royal is buying City National Bank of California for US$5.4 bln. The stock got to $89 on the announcement. If and when this goes through there will probable not be any stock left to trade but we can always pretend. The chart is relatively clear , from the lows it is either a B-wave, like most stocks, or a 5th wave. Either way the next move should be back down to about $25. This stock trades at a p/e of about 22, compared to RY at about 12. RY only recently got rid of Centura Bank in Florida, despite all the snowbirds they could not make a go of it. The timing is also rather odd. RY is down about 10% over the last few months and the C$ more than that so they are paying roughly 20/25% more than they would have had to do a few months ago.
We did not expect RY to trade above $82.50 ( see Sept. 17th 2014 blog). Of course it did and briefly reached $83.87. It should go down quite a bit further so this acquisition may help that process along. See below;
