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Is the Dax showing the way down?


Mercury

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The recent move down on the Dax is strong and could be the beginning of a drop for indices in general.  It has bounced back off the Fib 50%, an exact touch too, and good EW count to the top, with strong neg Mom Div on the hourly, supported by Daily indicator too.  We may well get an equally strong counter rally, especially if the US open strong, but then perhaps the real drop will begin?  I am short just below my triangle break at 9975 with stop just above the 50% Fib.

 

Here is the chart:



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True, but here is the thing, at any point in time there are always at least 2, usually more, possible scenarios that contradict each other so really it is all about assessing the likelihood (I don't say probability as that would suggest actual statistical analysis) of each one and making your call.  For the Dax to head on up to the 11,000 mark the FTSE and US markets would, most likely, breach the early Nov 2015 highs and that would put us on track for new all time highs, rather than staying within the Bear market on the Dax.  Assuming all the major global indices continue to track each other and why wouldn't they at this juncture?

 

New all time highs is a valid scenario but at this stage my view is that the bear market is the more likely scenario.  Even if you re a fundamentals trader there is little, other than central bank interference, about to support new all time highs.  The rally from 2009 lows has been underpinned by QE and ultra low interest rates and a belief in China.  I wouldn't believe a word that comes out of China in terms of economic stats...  In fact history tells us that a key feature of Bear markets is very strong relief rallies that look like they will head to new highs but simply run out of steam.

 

Under either scenario a significant pull back is overdue and when it comes that will be the time to profit from shorts and position for the big drop with close stops to guard against the new highs scenario.  That and a good money management strategy.  Currently I am seeing resistance across the map on stock indices, and Oil as it happens.  I don't know whether this is the beginning of the next major wave down or just a pullback before fresh highs and my bias is Bearish so I have to have strategies to protect against the Bullish scenario but trade where my analysis is pointing me.

 

Unless someone comes up with something much stronger to alter my bias, which hasn't happened since May 2015.

 

Ya pays yer money, ya makes yer choice...

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Dax also breaks my lower triangle line (see post on SP500 & Daily FTSE).  I'm short at 10052.  Now have Dow, SP500, Russell2000, FTSE100, Dax and Nikkei all breaking Triangle formations down.  Add to that Oil and Copper and we have something worth taking notice of.  Gold is the fly in the ointment but it can go in line for a while, I anticipate a turn back up on gold faster than the rest, maybe between 1190 and 1200 (38% Fib).

 

Chart:



 

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Yep, "the trend is your friend..."

 

"...until the bend in the end!"

 

It's the latter that I look for and that is what I am beginning to see with my analysis.  It is not confirmed yet of course but I have some clear signals I will be looking for over the coming weeks to decide on whether we will get another leg up of have begun the drop.  In all of my scenarios the current trend from 11 Feb will be broken.  Of course it depends oon how you define trend.  I use tramline pairs for this and on that basis the trend is already broken.  If you use MA (dependingg on which setting) there is still a bit to go but the next day or 2 will tell the tale on MAs.

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The fundamentals  (lower interest rates ) are keeping these markets high.

These are not letting it drop like a wet paper basket  (when fundamentals  turn) , it will break like a wet paper basket

 

I can't upload images , sometimes I get camera  to upload . other times insert image

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OK so are you Long or just standing aside for now?  I'm always interested in the logic people have for taking a position that is the opposite of mine.  I am firmly short and in the money with B/E stops on Dax, S&P500, Dow, FTSE and Nikkei.  Expecting a small relief rally before a big drop (see my post on S&P500 earlier today for details of my analysis on all these markets (using S&P500 as a proxy for all).

 

Also interested in your Fundamentals point, are you of the opinion that until interest rates go up and/or QE stops that stock markets will stay buoyant?  Is it a withdrawal of QE and rising interest rates that will give you a sell signal (your wet paper bag analogy)?

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I am looking to to sell higher highs  with puts, as I see u s indices   are well supported .

 

Any   fundamental crisis like China , Greece , portugal , spain slowing etc , will send dax lower 

 

Interest rates expectations  or changes  in expectations     are not enough to trigger a sell off 

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Ok got it, so basically we are both Bearish and looking for shorts on the US markets but you are either neutral or Bullish on the Dax while I am Bearish.  I am not sure what technicals you are using but I think they are different from mine so maybe it will be hard for us to compare our positions.  Also I don't believe in fundamentals moving the markets, although I do like a decent narrative to support my technical analysis (I have posted on this topic in the Fundamentals section).  With respect to Fundamentals and news/data releases I subscribe to the "buy the rumour, sell the fact" adage (or vice versa of course) and avoid major data release points until the dust of extreme swings has settled.

 

I'm always interested in the approach others use though so if at some time you would care to outline your analytical method I'd love to see it in more detail.

 

Cheers,

 

Mercury

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supports /resistances , channels , mas , volatility , price action and intermarket correlations  is what I use  .

 

Look at this chart up channel on dax  , dow has today formed down channel

 

So until now  there is no trade short  , if Dow retraces to top of channel  , I will look for short

 

My anylyticatical tools are not showing any trade    , usually they have high readings for sells < -60   and abover + 60  for longs 

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The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high." Always remember that sugar once fell from $1.25/lb to 2 cent/lb and seemed "cheap" many times along the way. 5. In bull markets we can only be long or neutral, and in bear markets we can only be short or neutral. That may seem self-evident; it is not, and it is a lesson learned too late by far too many.

 

 

. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.

 

 To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.

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I understand where you are coming from but I don't trade like that.  I think, correct me if I'm wrong, that you are broadly taking a hedge fund approach, maybe not consciously.  Hedge Funds are trend followers and are very good at it, until the trend ends and then they are rubbish...  My method is to identify the major trend turns and join the trend for the longer term.  To do this the reverse of your statement is true for me, I sell strength and buy weakness.  Of course it depends whether we are defining strength and weakness in the same way.  I don't have the issue you alluded to with your sugar scenario as I don't attempt to value the markets.  I couldn't care less whether sugar is cheap or expensive, only where I thing it is in the market cycle.

 

Is oil cheap or expensive right now?  How can you tell?  Value is merely what the market is willing to buy and sell at.  Fundamentals are not consistent in their impact on this, the impact changes, why?  Sentiment is the key driver of the market place in my view and that is partly fundamentals (at least contextually) but mostly about the twin emotions of greed and fear.  When these two are out of balance we get a move in the market.  When significantly out of balance we get a correction or major turning point.  When off the wall crazily out of balance we get a bubble followed by a crash or catastrophe!

 

I am a bear but I'm not sure on the timing and when it comes I think we have a good chance of seeing a catastrophe this time!  If this happens then most, if not all, trading and analytical methods can be thrown out and just ride the collapse.  The trick is to identify it and time it...

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Dax fall looks like an EW textbook W1-2 concluding (Daily chart - Pink label in below hourly chart) followed up by W1-2 (Green label) of W3 down to me.  Neg Mom Div at the 23 Mar top on the hourly (if it is a top...) and Neg Mom Div on the Daily chart after 4 failed attempts to breach the 50% Fib.  I now think we have commenced the W3 down and may get a small retrace (probably connected to NFP today) after which a bigger drop is on the cards.

 

Japan seems to be showing the way with a big drop overnight, all this despite alleged positive data from China - does anyone actually believe data coming out of China?  The response to Yellen has been predictably short lived and really anything other than a terrible set of NFP data (i.e. supporting Yellen and Co backing out of interest rate rises) could pull the rug out from under this market it is so jittery.

 

I sometimes get too locked into the hourly charts and even the daily charts can put the blinkers on so looking at the Weekly on the Dax perhaps you can see better where I am coming from.  Price action has dropped below a strong weekly trend line and then come back to find resistance on the same line (the 4 failed attempts to break 50% fib) and now seems to have had enough... I'm not saying it's gonna drop all the way to 6900, not yet anyway, there will be a few twists and turns before any big drop for sure.

 

Charts:



 

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Hi M, that 3rd picture does look somewhat classic.  As you say it's easy to get caught up in the cut and thrust of the shorter term stuff and your head starts spinning (or at least mine does).  Stepping back and look at the overall picture on that weekly is gives a great (possible) view of the way forward. C

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Hi C,

 

Very important to constantly check back on your big picture in my view (I try to build this into my standard repetitive analytical routine).  Even a few days on the Daily can change the picture on a 50/50 set up.  When I have suffered a reversal in the past I can very often see why when I look back at the Daily and realise I have been locked into the short term charts for too long.  If I had referred back, which I do more regularly now, I could have avoided a loss and even better got in on a strong move. 

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