Chart of the week: will the DAX keep falling?

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I have spoken of the DAX, Germany’s main stock index, on three recent occasions and have correctly predicted its moves in broad terms:

1) Super TV, on Sky Business, 1 December 2011. In the chart below, ‘D’ marks the December appearance where I predicted that there would be a +7.7% target, illustrated with ‘T1’, followed by a second target shown at ‘T2’ for a 12% gain. You can see on the current chart below, the index has exceeded both my targets.

2) Switzer TV, on Sky Business, 1 February 2012. In the chart, ‘F’ marks the levels of the index at the time of the interview. I thought T1 was enough as the index was taking a long time to push higher and already looked already. I had underestimated the time it would take to get to T2 and higher.

3) Switzer TV, on Sky Business, 23 March 2012. The DAX was at 7,071 almost a month ago, which is marked ‘Mar’ on the chart. I predicted that the DAX would fall back to T2, which was 5% lower and then T1, which was 7% lower. Both these targets have now been met. Last Friday night the index closed at 6,583, hitting an intra-day low of 6,552. My T1 level of 6,571 representing a 7% fall has been met.

Will the DAX fall further? Prediction: it should, after a consolidation here

Based on the last close, the index is now at 6,583. So what on the chart reinforces my argument of a consolidation followed by further falls?

  • My target levels of T2 and T1 have now been achieved in a short time frame of less than a month. The DAX needs to rest, otherwise further falls will indicate something more sinister in the wing.
  • I said in my March interview that the index could fall to the 200-day moving average at 6,270, or a fall of 11%, and we could expect that to be ‘normal’. I still hold to that view.
  • The 200-day moving average is pointing down and, in fact, is now bending down more. This is not good, and is adding to my argument that the market could fall beyond 6,270. So expect lower levels than where we are now.
  • The line in the sand is the ‘Big S’ below the horizontal line of 5,800, at around 5,664. Let’s hope I don’t have to contemplate a move below this level. This would be ugly, a 25% fall from my March appearance.

What on the chart could appear to make me wrong?

That is, if the DAX doesn’t consolidate, but shoots up higher from here in the short term.

  • Nothing much. To shoot up higher now in the weeks to come … that would surprise me.

Quick wrap of my calls over the past five weeks:

  • 10 April 2012: Telstra (TLS) buy at $3.31, not done, still waiting to be hit. Last week, the lowest it got to was $3.33, be patient. Wait at $3.31.
  • 2 April 2012: Gold buy $1,672, stopped out $1,631 for a loss of 2.5% on 4 April 2012. Position Closed.
  • 26 March 2012: Shanghai Stock Exchange 2,349, short. (If you followed my interview on Switzer 22 March 2012, the Shanghai Stock Exchange was 2,375, short.) Closed out on 1 April 2,262, fall of 5% predicted. In that interview, the second BIG support marked “S” was in fact 2,262. Position Closed.
  • 19 March 2012: Envestra (ENV) $0.80 (ex div 2.9c) = $0.771, buy. Now $0.795, up 3.1%. Position still open.
  • 12 March 2012: Spark Infrastructure (SKI), $1.365, buy. Now $1.475, up 8%. Position still open.

Please note: my views are not for the long term. My method results in views expressed that relate to an outlook that lasts weeks or at most months. For example, my view on Shanghai’s Index has for now been met and completed since 22 March 2012, 11 days later. Currently regards Shanghai, I am in a cautionary observant position. Your utilisation of this information needs to take into account the time frame I set. The stocks recommended as ‘steady as she goes’ may be held for the longer term, which for me means months.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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