Overview:

Since the recession of 2009 world markets have recovered providing us with a near 10 year bull market.  All trends eventually come to an end so we are looking to see if the DAX has any juice left in the tank.  Regardless of earnings & fundamentals, or geo-political issues, sentiment drives markets.  Elliott Wave and Fibonacci provides us a guide to gain perspective of market cycles based on investor sentiment..  Many put too much faith and moreover too much effort in dissecting the smallest of time frames.  The smaller the time frame the more noise and the less accurate they become.

The “Secret Sauce”:

Everyone’s grandmother has that “secret recipe” that was just fabulous when we were younger.  Of course many like me tried to copy grandma’s recipe from a 3×5 recipe card.  When I first attempted to make granny’s “secret pasta sauce”, I tried to be exact in my measurements, and it came out all wrong.

Granny’s “secret recipe” ended up not having “secret ingredients”, it ended up being quite simple; she bought onions, garlic and herbs, chopped them up, and cooked it to taste.  Elliott wave and Fibonacci are no different.  There is no “secret ingredient”; it is simple ingredients that make up a recipe for a market cycle.

All too often I see someone attempting to break down the 30 minute chart into wave counts.  The fractals become so complex; it reminds me of my first attempt at making sauce, where I had too many ingredients.  I found out the hard way.  Throwing more ingredients in your sauce does not imply your sauce will taste better.

The DAX is the perfect example for how you can over complex a simple recipe like pasta sauce.  First let us take a look at a sauce that has too many ingredients.

DAX Daily:

The chart simply tells me we are trading sideways.  I could delete all the counts from the chart, erase all the “trend lines” and come to the same conclusion.  We are consolidating.  Actually by doing this it makes the chart look like a consolidation.

To be fair there are some to claim success in breaking down these counts, yet I have found them to be more misleading than any type of guide personally.  More often than not my sauce tastes better and it was easier to make.  Of course I am bias.

To get a better feel for where we are, let’s take a step back and get rid of the noise.

DAX Monthly:

From the chart above you would not even recognize that this is the same index.  Since the recession of 2009 we have a painfully clear wave count. I even added a sub fractal count for confirmation.  Where it gets tricky, and what is subjective, is whether we have completed a (5)th wave in a broader cycle.

The DAX is clearly in the middle of the broader resistance and support zone.  This is a “no position zone” where we need to see some further evidence before adding or trimming to long positions.

A breakout to the up side, through consolidation and the resistance zone (specifically the 13,290 level) is likely to result in a rally to the 14,140 level.  We must be aware that this market is trading at or near all time highs already so it is possible to get a fake-out around 13,500.

A breakout down brings into pay the 11,738 level where we can look for evidence of a reversal.  This may result in a double bottom leading up to a final impulse wave.  Failure of the 11,738 level to hold implies market sentiment has turned bearish and we can look to 9750-10575 for broader support.

To gain better insight we look to the daily after cleaning it up.

DAX Daily:

Notice I do not have too many ingredients.  I have enough information shown, to verify the count I am looking at.

Currently the DAX is testing the 12270-12402 zone or the 0.618 retrace of the previous bullish swing.  Though 12,270 is the lower support level, we could see a pullback to 11,727 without negating the overall count.

The current pullback is enough to complete a mid term correction, and we can look for a bullish reversal trigger to enter a long swing trade. We need some further evidence at this point and we do not want to assume we get a reversal here.  The structure can fall apart quickly, as we have unfortunately become accustom to in bitcoin.

As we mentioned above, 3rd waves are generally more defined.  We need further confirmation; and the level I am looking at to confirm this is 12945.  A pullback from this level and a bullish reversal provides a higher probability of a successful long swing trade.

Bottom line we are consolidating within a range and until the range is broken, one way or the other, we are simply guessing. With that said shorting into a support level risky, and this is not a place to short.

Summary:

Simple charts more often provide better insights into the overall picture regardless if you are new or a seasoned veteran.

We just do not have enough evidence to call a direction one way or the other.  Let the market consolidate and provide us with answer.  Do not try and guess here.   The DAX is in the middle of a broader range, and I do not see anything that provides a valid setup one way or the other at this point.

Overall this is the final stage of a multi year bullish cycle.  When and where we see a major correction is anyone’s guess; however, the broader picture implies there may be some fuel left in the tank.

Markets can remain bullish longer than shorts can remain liquid!  For further analysis into the DAX as a premium member you can read Marc’s post here.

 

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