Germany’s DAX

Today we review Germany’s stock market, the DAX composite. The DAX is one of the five European stock indices we track on a regular basis: DAX, IBEX, FTSE, SMI and STOX50. Overall, the IBEX continues to look bearish, the SMI appears to be meandering higher, the STOX remains choppy, the FTSE is bullish after making a Supercycle low in 2009, but the DAX is much more bullish and advanced in its wave structure than any of these indices. While the FTSE remains Europe’s bellwether index, the DAX is certainly Europe’s leading index.

The first chart we review is the DAX monthly from 1990. Notice the DAX completed its Supercycle wave (SC1) in the year 2000, and then lost over 73% of its market value between 2000 and 2003. This is typical Supercycle was activity, a decline in excess of 50%. This count is also more aligned with the emerging economy of India’s BSE than with the typical aging economies of the western world.

After the 2003 low the DAX embarked on a four year Cycle wave [1] bull market as noted in the weekly chart below. Again quite similar to India’s BSE, but significantly different from the typical western economy. After the 2007 top the DAX entered a two year bear market when it lost about 50% of its value. This is more in line with the typical Cycle wave bear market, than a Supercycle. Then in early 2009 the DAX entered Primary wave I of a multi-decade Cycle wave III bull market. The typical western economy is a cycle behind: SC1 in 2007, SC2 in 2009 and Cycle wave [1] underway now.

In review of both the weekly chart above and daily chart below we now make some estimates based upon the current wave count. Since we are dealing with a Primary wave I bull market, this bull market should divide into five Major waves with the Major waves also subdividing. Thus far, Major wave 1 rose from DAX 3589 in Mar09 to DAX 6342 in Apr10, a gain of 2753 points (76.7%). Major wave 2 corrected to DAX 5608 in May 10. Then Major wave 3 got underway. Thus far, Major wave 3 has risen 1572 points (7180-5608). Also, there is the potential it may have topped recently and we have posted a tentative “green” Major wave 3 label. Should a new downtrend be confirmed by OEW the future implications are important.

  

As you should have noticed by now Major wave 3 (1572 points) would be significantly shorter than Major wave 1 (2753 points). After a typical Major wave 4 correction to about DAX 6600, the maximum upside for Major wave 5 (and the Primary I bull market) would then be between DAX 8100 and 8200. When we compare this level to the bull market highs on the monthly chart above it would appear as a significant multi-year triple top. But it will not be! The bear market that would follow should be in the normal 20% to 40% decline range with likely support around DAX 5500. In summary, Germany’s DAX should outperform most major western stock indices over the next couple of decades. If you would like to track the DAX with us you can find it at the bottom of page 7 using the following link: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987&cmd=show[s205800679]&disp=O.

About tony caldaro

Investor
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2 Responses to Germany’s DAX

  1. x0521 says:

    Tony, Thanks. Certainly appears to be many aternatives to the US equities you have highlighted for those that follow your analysis. DAX certainly has a good risk/reward if it does indeed pullback near term.

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