DJIA & DAX

There is quite a good chance that a medium to longer term top is in!
Just take a look at the DJIA. It turned just 5 points below the 2011 high. So for an elliott wave 2 up it has to stay below the 2011 high and that is what i am looking for.

In addition to that the VIX just bounced of its lower trendline of the wedge it formed since August 2011. A move above its upper wedge-trendline would indicate a further sell off in my opinion!

Especially the risk reward on such a trade is compelling if you think this move up since October is an elliott wave 2 or b. At least the October lows should be tested in this case and therefore the stop of approximately 50 points for a 2,400 point move is tremendous. If this the correct scenario is another question but at least worth considering.


The German DAX is underperforming since summer 2011, so in general not a great sign in the bigger picture. In a bearish scenario the 7,000 mark should provide resistance. On the other hand I do not see an adequate stop for a bullish trade, at least none with a nice risk reward ratio.


All in all I think the chances on the short side are much better at the moment, but I am not calling a bigger bear market (yet)! In addition I would rethink this bearish scenario if the DJIA could get above 12,876.

Technical Analysis - German DAX 30

As I mentioned at the open this morning the chances for a little bounce are very high but the bounce was very weak. The German DAX could close the gap but failed then at the 5600 level. In my opinion there is still no bottoming process in work and therefore my target around 5000 to 5200 is still intact.

Between today's close and my target zone is just one level which could support the stock index and that is 5340. Nevertheless my main scenario is DAX down to at least 5200. From there we could see a little bounce into the year-end before selling off really hard.

Why I am still very bearish? Take a look at the weekly chart of the DAX.

This chart shows the German DAX 30 on a weekly basis with the 50 week exponential moving average. There are some outstanding similarities on the chart. The selloff in 2008 was similar in intense and time compared to this year's selloff. The rebound in 2008 stopped right at the 50 week exponential moving average like in October 2011. Maybe we will see a small bounce into year-end but then I think we could see a plunge into mid 2012.

DAX 5500 - Market Analysis

The DAX reached 5500 points in the premarket. I think there is a good chance for a rebound towards 5750. At least the gap should get filled today. I still do not think that this is THE bottom. After a retest of 5750 I think we are heading lower. For sure we could fall to 5000 without any rebound and without closing the gap but in my opinion this is a very low probability scenario.

DAX Analysis

Today's action was very negative. The German DAX 30 closed at the lows of the day at 5606 on higher volume.
As long as the DAX 30 stays below 5800 there is a first downside target around 5000 to 5100.
What this action means in a bigger timeframe will be discussed in one of the following posts.
Nevertheless keep in mind that a close above 5800 would be a first indication that today's sell signal was a false break to the downside.

SMI (Swiss Market Index CH0009980894) and Nestlé (CH0038863350)

The SMI compared to other indices had a very weak recovery from the 2009 lows and since early 2010 the SMI could not make new highs. It also crashed much harder in August 2011 and nearly reached the 2009 lows. On the monthly chart you can see two big reversal candlesticks but nevertheless the recovery is still very weak compared to the foregoing selloff. A very important level of support/resistance on the monthly chart is the area between 5900 and 6000. Back in 2004 this area acted as resistance and in 2010 and 2011 as support! I want to see a monthly close above 6000 to get bullish.

On the weekly chart you can see slow recovery since August 2011. The SMI just managed to close the gap around 5750. You can also see on the weekly chart the importance of 6000 level in the SMI.

On the daily chart of the SMI I kept an eye on the bearish wedge which has been broken to the downside recently. During the next few weeks chances are high for a further decline. At least a retest of the starting point of the wedge should happen. So my target to the downside is 4700 as long as we stay below 6000 on a weekly basis.

The chart of Nestlé (CH0038863350) is more neutral. After a huge selloff in August Nestlé could recover back into the range from the last two years between 50 and 55. In the middle of this range Nestlé often found support or resistance around 52. That is right there where it closed today. So above 52.40 is room to 54.50 to 55 and otherwise a retest of 50 Francs is very possible.