Tag Archives: German Dax

Dilemma of dynamic patterns

Good day traders,

As the market would have it with me so often, the exact opposite of my sentiment usually happens. Ever since my last post, indices around the world have rallied hard. The sharp devaluation gave long-term players an opportunity to snap up bargains on the market. As we cross over to the latter half of the year, indices are either at or above their 200-day moving averages, and having made higher highs and higher lows after the scare in January. Unsurprisingly, price action over the last few months have developed a bottoming pattern of sorts: specifically, unconfirmed, inverted head-and-shoulders patterns are showing up on many charts. It may be a case of the breakdown from large, upright head-and-shoulders patterns resulting in a consolidation instead of further downside.

With every wek and month of upside, it does dent my confidence of the longer-term decline I am expecting. Being a long-term player is analogous to a huge ship’s maneuverability compared to a small speedboat: I cannot and will not change my outlook until way past the bottom. It is tempting to switch from a bearish to a bullish outlook now but I am still not convinced with the recent rally.The dilemma I face now is because of the presence of dynamic patterns that are suggesting upside to come. I use the term dynamic pattern to mean general price patterns that have a particular shape in recent history – these patterns do not have conventional names like the head and shoulders and others; or they may but with a certain “twist.” I will illustrate what I mean in the charts below.

The first chart is of the CAC 40. The turbulence late in 2014 produced a descending, broadening wedge pattern, which also turned out to be a inverted head and shoulders. Early in 2015, the market took off and the CAC 40 blasted off to new, major highs. Now, steer your eyes to the right half of the chart, and you will see a similar phenomenon. It is not so much the small, topping head and shoulders that matter but the similarity between the two huge, descending, broadening patterns. I have veered away from trading patterns in recent years but it is magnificent to see such huge patterns unfold, and even more important to gauge their sucess rates. Ditto for the STI and Hang Seng Index- albeit making reference to an inverted head and shoulders in 2011-2012.

A1

Moving on, I have the Dax. The dynamic pattern in the Dax starts with a good, long uptrend before a downward-biased contractional period. Then, price moves down in a classical a-b-c Elliot Wave retracement pattern. In this dynamic pattern I am identifying, the Dax then goes up and congests for a little while before flying up and away. Now, look to the right half of the chart, and see if you agree with my judgment of  the same phenomenon brewing. With such beauty in the charts, how can I ignore the case for upside?

The next chart is of the S&P 500. Bear in mind that I have highlighted the presence of a general, large, rounding pattern – a stalling in the long-term, multi-year bull run. Within that large pattern is wht we now see as a clearly-defined head and shoulders with a right shoulder breakout upwards some time in March of this year. Price is currently testing the head region. Take note of the smaller head and shoulders that is also undergoing a head test now. In this case, this dynamic pattern does not indicate anything since the head test is still ongoing.

a2

In the next few charts – FTSE 100, Hang Seng, and Russell 2000, you will see what I mean by the large, rounding, topping patterns strting to give way to what seems like a reversal, inverted head and shoulders. It is certainly not the first time I see such a phenomenon but my experience tells me it is ust about fifty-fifty where the market will head to next. Sometimes it carries on higher and proves the inverted head and shoulders to be correct – rendering the earlier head and shoulders to be invalid, or the market dives lower and proves the inverted head and shoulders (usually the smaller of the two) to be a false reversal indication. Tough call is it not? Such is the market!

a4 a5 a6

All in all, I am still wary of the multi-year bull run that has lost some steam in the last 2 years because the looming, gravely topping pattern is still intact; however, there could be short-term plays to the upside.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

 

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End of Europe’s uptrend while America advances?

Good evening one and all,

While browsing through charts of my workstation, I noticed quite a difference between major European indices and American ones. The general picture of the European indices seems to be that of a high made in the middle of the year, then a collapse, followed by a quick recovery, then another fall, and a small recovery to where the markets stand now. American indices were tested when selling pressure came in a few weeks ago, but buyers came out fast and the indices made V-shaped recoveries. These V-shaped recoveries are quite reliable to be traded on: the buying pressure simply blasts the market back to where it was before the decline. What this all means to me – even as my previous sentences summarized the markets on both sides of the Atlantic. – is that US indices are still considered to be in their tremendously strong uptrends but European indices are looking quite “questionable” now – at least with regards to a long-term uptrend.

I will briefly say how I think the charts may be saying something about the general economic picture: If you consider the strength and shape of the uptrend of the US indices – and basic theory about how markets relate to one another internationally – it is quite obvious that US indices have been pulling the global indices along over the years – generally-speaking, of course; however, with my recent assessment of the charts of European indices, it seems to me like Europe may be facing harder headwinds soon. There are countless factors that can come into play – and I obviously do not want to go into them; not on this site at least –  and only when events come to pass can we look back and see everything play out on the charts. But it is something I will take note. American indices are definitely back on track, and there is no indication to me of any reason why American stocks will not continue higher.

In the first three charts below, I have the Dax, CAC 40, and the Footsie. The general picture is the same: a huge consolidation after a long and strong uptrend. The worrying thing is that the recent retracements cut deep, and the markets were not able to recover back to prior levels. This is very different from American indices that have shown healthy recoveries into the prevailing uptrend. I am not suggesting a crash in European indices – barring a global decline – but when I see such trends stall, it simply means more sideways trading in the months to come. Contrast with advancing US indices, Europe certainly should not be overweight in a portfolio.

Dax   Cac  ft

sp5

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

US leads, Europe testing highs

Evening all,

Another week of trading sees the S&P 500 dancing in 1700 territory. US markets have been proving to be very strong, and global markets are taking cue. European markets are now very near or at important previous highs. I look at the Dax, CAC 40, and FTSE 100.

The Dax is already trading past all-time highs. (As a side note, this is a classic example of the fundamentals being reflected in the chart. Germany is regarded as the strongest nation in the EU). 8100 is closest support. Whichever time frame you are on, the uptrend is very strong. I also do not see any reason why the Dax should not continue higher. The next few weeks of trading will show if the Dax can remain at such a stratospheric level.

dax

The footsie is also trading at all-time highs – albeit slightly below and not above like for the German bourse. However, I am seeing some room for downside in the Footsie. A V-shaped kind of pattern – different from a V-bottom – depicts recent price action. I am usually cautious of such a formation on the chart as it is usually followed by consolidation in the next few weeks. In the long-run, however, as a trend-follower, I like to see highs being tested.

ft

Next up, we have the CAC 40. Despite performing very badly in 2011 – returning down to test 2008 lows – CAC 40 has managed to recover to post-crash highs at the 4100 region. CAC 40 did run up there earlier in the year before succumbing to the June correction. Like the footsie, I see a V-shaped formation which is not supposed to be a very bullish sign. For now, I have to respect the resistance at the major high; though, if markets continue to move up convincingly, these bourses should take cue.

Cac

All in all, I continue to wave the bull flag because of the clear uptrend in major indices. The smaller European indices like Greece, Italy, and Spain may not paint the same picture as Germany’s; however, most other indices are on the same uptrend path from several years ago. In the short-term, majors highs are being tested, so the next few weeks should tell us if stocks are ready to soar to new heights. If not, this major high will send the market down for another correction like what we had in June.

Surprise in store?

Good day all,

The last trading week gave us quite a few good pieces of news. Strictly, I am still a brear on equities; but, I see the current market as a ranging one after I got stopped out on a few shorts. I tell myself that as a chartist, I should not be swayed too easily by news. It is alright to read up and be in the know but be cautious not to let news articles cloud one’s judegment. With that, I am still a bear – there is no clear indication on the chart yet that tells me to buy dips instead of  selling rallies. I support my bearish view in the charts below.

 

Basically, I see downward parallel channels depicting the general downtrend indices have been in for quite some time now. European indices are mostly below the 200-day MA. Technically, I do not see any reason to be bullish on indices though it may seem the recent consolidation is hinting at a rebound. So, what surprise exactly am I thinking may happen?

Several indices are forming unconfirmed inverted head and shoulders patterns. Take a look at the video below. The presenter, Oscar Carboni, shows us the formation of an inverted head and shoulders pattern in quite a few indices.

Link: http://www.youtube.com/watch?v=-itHSTMMkkE&list=UUez8uA1o_fDYsrSf4auWSjg&index=1&feature=plcp

In conclusion, if these inverted head and shoulders do confirm with an upward breakout, it signals the start of a climb upwards. A downward breakout means the general downtrend shall continue – as I have been pitching for a few weeks already. Let’s see how this goes.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Dax breakout

Hey all,

I have a really quick, short post for today. Dax has broken out of an ascending triangle. Click on chart below for annotations.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Hope

Good day all,

Nothing much on equity charts meant I did not update much this week. Equity markets did well actually, with indices around the world posting small gains. European and american indices look quite good on the charts, with price action showing signs of a breakout from the base that all markets have been consolidating in. Asian markets (including our STI) do not look too good though. Following the title of this post entitled hope, I will upload some charts to show you all why the bullish tide may be coming in.

    

There are other charts I save on my workspace, but in general, the western equity charts look quite good; while the asian markets do not look too well. Next week should paint a better picture for us. I am really hoping for a recovery to put us on track for a multi-year bull run (that starts from 2009). My concern right now is that indices may well start falling from next week onwards. There is a technical argument for this since indices are still at the top of their consolidaton range – and not clearly above. Also, volume over the past two weeks has not been ideal. And the old school of thought is that we need volume to support any strong move. So it should not surprise us if markets start falling next week. However, as the title of this post states, I am hoping last week’s close near the top of consolidation ranges is a sign of bulls coming in to push the markets up and away.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Markets tumbling

Evening all,

With all the news coming out of Japan, whether it be pure rumours and speculations or facts churning out of the media, there was no chance the stock market was not going to drop. Stocks across the board have dipped today, with some dropping several percentage points. To be honest, I have not followed the news much over the weekend. From a technical standpoint, I can say that I did expect the STI to fall, coming out of a bearish pattern. I only hope the chart does not change shape, which leaves me with no choice but to reverse my bullish year-long stance.

From a simplistic point of view, let us not forget that what it causing the markets to tank over the last month or so is a result of negative issues from two regions in the world. Sooner or later, these issues have to pass, and when that happens, the markets will get on an uptrend. In the Libya/Mideast crisis, price of oil will have an impact on economies around the world, which obviously seeps into stock markets. So from there, there is a possibility that whatever is happening to those nations, if not solved quickly, can cause catastrophe in the stock market.

My view on the latest natural disaster in Japan is that this is yet another event to halt the market. I believe that it is just a matter of a few weeks before financial markets leave the Japan Tsunami in history. Please do not think I am overjoyed at such an event as a dip acts as an opportunity for bulls to get into a position. My prayers go to the people in Japan; but, I have to block out emotions and feelings when looking at a chart.

I see all the bad news over the past several weeks as reasons for the market to coil up. For those who have been coming here for a few months at least, you will know that I am comfortably bullish on the STI – and stocks markets in general. I was expecting a testing first quarter, but obviously not thinking a Tsunami would be the cause of a stock market dip. What I see happening can be compared to a simply analogy of a spring. First, a spring is pulled back – into a coiled position – after that, it explodes up when released. Going back to the market, that means that a first quarter dip will be followed by months of uptrends.

Those are just some of my thoughts and takes on the stock market. I will pair them up with charts below, annotated to show how they fit in with what I am seeing in the world. Everything is still speculative except for what I see on the charts. Always remember that anything can happen, and we should all be nimble and ready to change any views when necessary. For now, I will reiterate that I am a year-long bull, and so a time like now would be an opportunity for fellow bulls.

   

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.