Monday, March 23, 2015

DAX in perspective

Almost one querter is passed from this year's calendar and the DAX index has rallied in the midst of the GREXIT and Ukrain-conflict, not to mention the fear of the FED's interest rate decisions. The index arrived to a very delicate place regarding the long term chart in logarithimc sétálni and the fact that the price just touched the top of the big base channel on the monthly chart, while using arithmethic scale the price action has broken every base channel you can draw on the charts.

I always try to analyze the trend in different timeframes and reach a high probablty in determining the trend before pulling the trigger on a trade. My main tool is the elliott wave principle, RSI and different moving avarge settings.

So let's take a look at the big picture.

Monthly Chart from 26/01/2015

This is a monthly chart from 26 of January 2015. This monthly candle is important because it suggested a trend change and maybe a switch of degree too. The price action broke out all relevant base channel is the arithmethic scale, suggesting at least a wave 5 may come. But if you take a closer look at the balance of the preceding price action, the correction of the 2014 June top is just too big in size (and in time) comparing to wave 2 of the rally. This was telling me that a bigger movement might be ahead of us then "just" a wave 5. Since then the market has produced huge bullish monthly candles, and even some extreme opinions were published about a possibilyt of a bigger rally in the european stock markets

February and so far March brought us big candeles after the rally in January, which proved the "extreme" bull opionion is valid. The smaller timeframe pointed to 12200 which was already reached.The RSI on the monthly and weekly charts still suggest a strong bullish trend, but daily timeframe shows signs of climax. This is natural considering the extending wave 5s. It is very common that small degree patterns copy the larger degree. So if there is an extension in a 5th wave (which I think there is on the daily chart) then it is very probable that smaller degree 5th waves will also extend. This is what I followed for some time now.

Dail chart

This daily chart shows that the pirce acion found support on the MA10 and even there is a possiblity for a bullish slingshot. Although there is one problem with this slingshot: it has no signal candle and thus starting to get old. Last friday was a good opporunity for creating a singal, but the smaller timeframes leaned toward a complex correction pattern and not toward a break out attempt. Today's downside movement suggest that the smaller timeframe bearish bias is valid possibility, even today's candle shows a nice reversal setup for the traders on the daily timeframe, but it is not yet confirmed.

So the small timeframe is telling us that a complex correction - most likely a flat correction - pattern might be completed with today's price action. Although the market could go for more complexitiy, but it is not likekly in my opion.

1 hour chart

4 hour chart

In may trading at this stage I use counter-trend strategies, which means:
  • I break even at the chance,
  • I manage my position by using manual candle or moving avarage channell trailing stop beside a regular trailing stop,and 
  • close at either the target zone, or at the first exit signal.
So altogether I anticipate that the DAX will be on correction mode for at leat 1 or 2 weeks and then we'll see.I trade one wave at the time. I focus on what is goining but on the back of my mind there it is what might happen tomorrow. This way it is more likely that I can focus on the right direction and won't get suprised.

On larger degree, I think it is probable that higher prices will be reached, but a little pause is needed before that. So here is the next possible tartget zone after this ongoing correction. We'll see how the market decide...

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