I am not a big fan of technical analysis being used on its own. Having said that, today's chart of the day does precisely that, so try and not bet a farm on it. Because the US equity markets have been outperforming the world and the current crisis seems to be occurring within the EU zone, I had a look at German Xetra DAX – a highly cyclical and growth sensitive index of top 30 German companies, similar to the Korean KOSPI.
In the chart above, we can see that the DAX 30 is extremely oversold. The RSI has been in the oversold territory for pretty much the whole month now, while the MACD is very very far away from the 0 line. On top of that, Xetra DAX is showing bullish divergence between RSI and price, as well as plenty of bullish candle tails on a major support line at 5,400, including strong Friday's close. Finally, the current price is so far away from both the 50 day as well as 200 day moving average. Remember that markets are always mean reverting, so you should drop that perma-bearish emotion and turn contrarian.
Judging by this chart and simple technical tools, it seems that Johnny Come Lately's keep selling, while we are setting ourselves up for a very powerful short term rally from oversold conditions. It is also worth noting that, since the crash was one of the biggest in DAX's history, the rebound might go much further than most think as short covering takes hold. There are plenty of headless chooks running around telling people how we are repeating 2008 again, and these "perma-bears" are begging to be short squeezed.
Technical anaylsis is meant to show probability of outcome, so if I was a short term trader I would bet long the index spot or the equivalent ETF, plus write some naked puts on ATM options right now because Volatility-DAX Index (VDAX) is actually even higher than the VIX.
In the chart above, we can see that the DAX 30 is extremely oversold. The RSI has been in the oversold territory for pretty much the whole month now, while the MACD is very very far away from the 0 line. On top of that, Xetra DAX is showing bullish divergence between RSI and price, as well as plenty of bullish candle tails on a major support line at 5,400, including strong Friday's close. Finally, the current price is so far away from both the 50 day as well as 200 day moving average. Remember that markets are always mean reverting, so you should drop that perma-bearish emotion and turn contrarian.Judging by this chart and simple technical tools, it seems that Johnny Come Lately's keep selling, while we are setting ourselves up for a very powerful short term rally from oversold conditions. It is also worth noting that, since the crash was one of the biggest in DAX's history, the rebound might go much further than most think as short covering takes hold. There are plenty of headless chooks running around telling people how we are repeating 2008 again, and these "perma-bears" are begging to be short squeezed.
Technical anaylsis is meant to show probability of outcome, so if I was a short term trader I would bet long the index spot or the equivalent ETF, plus write some naked puts on ATM options right now because Volatility-DAX Index (VDAX) is actually even higher than the VIX.
Trichet to the rescue today for their banks?
ReplyDeleteGood DAX chart and analysis, see how this rubs off on our markets and gold.
Sentix-Sentiment for DAX is not so bearish as it should be. Every rally should be short lived.
ReplyDeleteThe market price decides how long the rally will lives, not sentiment indicators. They are just guides, not set in stone rules.
ReplyDeleteIf you click on this link, you will notice that the DAX is at least 19% away from the 50 day moving average. I am not saying that the DAX is going to rally 19% now, but as was the case during the last crash in 08, the price and the 50 day moving average will meet somewhere in the middle and that takes time - its not just "short lived".
Markets always mean revert. Is this time going to be different?
Nice on Tiho. And I agree with you post.
ReplyDeleteThe tape on the DAX still looks good to be, at least for a short term rally. Last nig we sold off by over 1% early in the session, but than we rallied back strongly to close down only 0.5%. I think the market is so oversold, we still got a lot of work to do, to remove these readings, and revert back to the mean. See how we go...
ReplyDelete