DAX and TSX

Hamilton

dax 24 jan 2012tsx 24 jan 2012

Here are the DAX and the TSX. Germany and Canada have vastly different economies but clearly the correlation is quite high. The DAX goes from a low of 1000 to a high 0f 8000, the TSX from just under 2000 to about 15000, proportionately the exact same amount. The Euro, Germany’s currency went from the 80-ties to 130-ties over roughly the same time period. The Can. dollar from 62 cents to 1 dollar; again both by about the same amount.  Both indices regained a very large proportion (near 80%) of what was lost in the great recession. Both did so in fairly clear B-waves. Both abruptly dropped sharply during last years summer, stopping at about the “pause”level of the B-wave. 4-5 months have gone by in what is clearly a wave 2 counter-trend rally. The next move is down hard in wave 3. Be prepared!

   In EW terms I would assume that the tops occurred at the actual high points, in 2007/8. The action from that point on is a large “flat” A-B-C. The “normal”target for any correction is the 4th wave of previous degree. Neither the DAX of the TSX have done that yet. They should. Those levels are roughly 2500 for the DAX and 6000 for the TSX. Similar levels can be arrived at if you like the Head & Shoulder approach.

   This is a huge top. It is taking so long because every time the bears get the upper hand another trillion or so in stimulus is frown at the problem, either from the US, the ECB or China. Investors are so ingrained with this Pavlov philosophy  of buying the dips, that they cannot imagine such an outcome. I am a member of an investment club consisting of about 25 reasonable smart people. My views, even when expressed delicately, are considered something akin to the mutterings of the village idiot. Only one other member believes the market might go down. There are no bears and that might just be the problem.

SHLD Sears Holdings

Hamilton

See previous blog.  We expected the stock to drop to roughly $20. It did but stopped dead in it’s tracks. Reason to perhaps change the count as follows;

SHLD Jan 23, 2012 bSHLD jan 23 2012 m

In the big picture the stock drops from $200 to just over $20, that, by any measure is a bear market and it could possible be all of it! If that were the case we would now be in a new bull having completed an initial first wave up followed by a deep correction, so deep that it almost retraces the whole first wave up. This is not at all unusual. The retracement would have to be an A-B-C which we have. Better yet C=A in terms of vertical distance travelled. The interesting part is the C wave, shown below in detail;

SHLD jan 23 2012 s

This is an almost picture perfect expanding diagonal triangle (3-3-3-3-3). Each leg, both up and down consists of 3 separate legs. There is always a lot of overlap and alternation between 2 and 4 occurs often. Once complete the rebound tends to be violent and  takes the form of either a new bull market or, at the very least an A-B-C up that should retrace the entire diagonal. Soon, perhaps at around $60 the A should stop and a pause should happen, often as a triangle. Should this in fact occur, the stock should be a screaming buy. Always use a stop just in case something else is going on. F, Ford is a good example of this particular pattern.

AEX, Amsterdam and Stoxx600 (Europe top 600)

Hamilton

aex jan 2012$STOXX600 jan 2012

On the left the AEX, the Amsterdam index, the world’s oldest, and on the right the STOXX600 which is essentially a basket of the largest 600 stocks in Europe. For the first time in a period slightly shorter than two years the RSI (Relative Strength Index) is registering a value above 70, normally assumed to be a sign that the market is somewhat overbought. The Dutch hit that level about three months ago and have fallen off.

In all other respects the charts are virtually identical. On the AEX 5 waves down are readily counted, which is not the case with the Stoxx600. But from that point on things are identical. First of all the retracement levels of 327 and 259 respectively, representing roughly the 61.8% level, which levels are never meant to be precise targets, just rough estimate where things might go, have been reached or will be soon. The structure of both corrections are identical, that is they are A-B-C’s, 5-3-5’s with the C wave as a wedge. C and A are roughly equal, either absolutely as in the STOX or as vectors as in the AEX. The MACD is warning that things might turn soon.

Pretty well identical patterns exist in the DAX (see latest blog) , the FTSE, and others. The exceptions are in the “basket” cases, Italy (see previous blog) , Spain’s IBEX and , of course, Athens. The conclusion is that all markets, more or less, are now ready to go down again. Also, all this intervention and “kicking the can down the road” and so on does little for the markets. After three months of noise , the ECB lending through the exchange mechanism of nearly 3 trillion, the IMF going to 1 trillion, Greek bonds going to 70% haircuts but miraculously  no default, the FED helping out (illegally) through central bank to central bank swap arrangements and the list is endless, the AEX is less than 1% higher than back in late October. The STOX did a little better, a bit more than 2%. This is true also for the S&P whose chart is similar as well, except that it is much closer to the spring highs.