German DAX Showing Signs of Exhaustion: April 19 begins the 11th week of the 15-26 week primary cycle in the German DAX index, following the 5433 low of February 5 or the 24th week of an older cycle that began November 3 at 5312. If this is a newer primary cycle, then there is no strong sign yet that the primary cycle top is in. But if it is an older one, a top is overdue, and a sharp 2-5 week decline could commence. So far, the yearly high was recently attained on April 15 at 6310.76. Following the Goldman Sachs securities fraud charges last week, the DAX then fell for two days, down to a low of 6140.38 on Monday. That is still above the 25-day moving average, which is currently 6125. A move below this moving average would suggest that at least a half-primary cycle crest has been completed, and prices are falling into an 8-13 week half-primary cycle within a newer primary cycle. But today, Tuesday, April 20, the DAX is again strongly up, suggesting that perhaps the high of April 15 was not a primary or half-primary cycle crest. This leaves open the possibility that the April 22 three-star critical reversal date, ± 3 trading days, will be either one of those crests, or a double top to the 6310 high of last week. If it makes a new high, it will probably do so under lower stochastic readings, this producing a case of bearish oscillator divergence in a critical reversal zone.
Price-wise, the DAX is already in the price range of several possible targets for a crest. Two of the most important are 6250.31 ± 96.00, and 6287.16 ± 100.00. On the daily chart, one will notice resistance also at a line connecting the highs of October 20 and January 11. That comes in around 6350-6375 this week. Two successive closes well above here would be bullish, and project higher price targets up to 6514 ± 142, then 6698 ± 164, and finally 6982 ± 401. Our trading methodology is to 1) wait until you enter a time band for a cycle crest, coincident with a geocosmic critical reversal date, and then 2) sell short if you are within one of the calculated price target zones. Right now that would mean traders could look to sell if this markets makes a double top or slightly higher crest up to about 6400, within three trading days of April 22.
If that in fact coincides with a market top, there is still the question of how far and how long it would decline. If it is a half-primary cycle crest, then the decline might only go below the 25-day moving average. It would be due to bottom within two weeks, and probably not go below 5914.52 ± 93.52. If it is a primary cycle crest, then the decline could last 2-5 weeks, and fall to 5811.38 ± 117.86. Anything below there would downgrade the trend from bullish to neutral. It would turn bearish if prices fell below 5433.
Trading strategy: Investors and position traders may stay with bullish strategies, buying all corrective declines that do not fall below 5433.Aggressive traders may look to sell short as prices are rallying into the April 22 three-star critical reversal zone, with a stop-loss slightly above 6400, looking for a re-test of 6000 or lower within the following two weeks, maybe as many as five. Then, look to cover and reverse to the long side, unless prices fall below 5500.The next big reversal date to watch is May 20, ± 3 trading days. Also note that there is a possibility of a big down day or two within a week or so the Saturn-Uranus opposition of April 26. Maybe that happened with the Goldman Sachs announcement last week, and the ensuing decline into early this week. But I think there could be another sell off coming up in this time band.
The Swiss SMI Also Exhibiting Signs of a Top: On Thursday, April 15, the Swiss SMI stock index soared to 6990.70, another new yearly high. But as it did so, the 15-day slow stochastics were not making new cycle highs. They were considerably lower, and have continued even lower since then, for a case of bearish oscillator divergence. The Swiss SMI is in the same cycle labeling possibility as the DAX. That is, this may be the 10th week of a newer primary cycle off the 6240.24 low February 8. Or it could be the 23rd week of an older 15-26 week primary cycle that started on November 3 at 6146.09. In either case, a half-primary or full primary cycle crest may have occurred April 15, or could unfold within three trading days of this week's April 22 three-star critical reversal date. Traders need to be watchful for a case of intermarket bearish divergence, where the DAX may take out its high of April 15 soon, but the SMI remains below its high of the same date. When that happens in a critical reversal date, it is usually followed by a healthy decline.
The 6990.70 high of April 15 fell within several price objective targets. These include 6977.04 ± 25.34, 6958.88 ± 95.92, and 7081.60 ± 110.40. These later two could allow for a slightly higher high. However, the "best" set up from our studies would be to see the April 15 high hold, and perhaps the DAX to make a slightly higher high, within the next week, and then for both markets to sell off into either their 8-13 week half-primary trough, or 15-26 week full primary cycle trough. Either would be due within the next three weeks, and possibly extending into the May 20 critical reversal period, ± 3 trading days.
If the 6990.70 high of April 15 holds, then the 1-3 week market corrective decline could take prices back to 6615.47 ± 88.55 for a half-primary cycle trough or 6568.35 ± 99.68 for a full primary cycle trough. Anything below 6450 changes the market from bullish to neutral. A break below the November and February lows of 6146-6240 will turn the market bearish. We have to keep open to all possibilities, because on April 26, Saturn will make its fourth of five oppositions to Uranus. With Uranus, unexpected shocks could rock the world financial system. This is an aspect of earthquakes and volcano eruptions, especially as it forms a T-square with Pluto in Capricorn. The recent volcano eruption in Iceland has resulted in a cloud of ash that has led to massive cancellations of air flights in Europe, which may result in more serious business losses than expected. If so, I would expect this to lead to another market sell-off of European equities within the next two weeks.
Trading Strategy: Investors and position traders should stay with bullish strategies as long as prices remain above 6450. You may look for opportunities to buy on a pullback to a half or full primary cycle trough in the next 3 weeks. Aggressive traders may look to be short or sell short as long as the SMI does not exceed 7000, especially if the DAX does take out its high of April 15 and SMI does not. However, look for the decline to end within the next three weeks, no later than the May 20 critical reversal zone, and reverse back to the long side unless prices are below 6450.
The Netherlands AEX May Be Forming a Top Too: On April 12, the Netherlands AEX recorded a new yearly high at 358.20. Following the Goldman Sachs' charge of securities fraud late last week, it fell back to 346.97 on Monday. But now it is starting to rally again, perhaps to a fifth point in Lorusso bearish 5-point reversal pattern, and perhaps into our April 22 critical reversal date, ± 3 trading days. Although the April 12 high is already within some upside price objective zones, there is room to move higher. Our upside price targets right now are 360.85 ± 1.63, 360.11 ± 7.45, and 363.04 ± 5.87. A move above 367-370 could be followed by a test of the 400 area.
But right now, the AEX looks toppy, and it is entering a critical reversal zone. If it makes a token new high, it will do so under lower stochastic readings (15-day slow), which would become a case of bearish oscillator divergence in a critical reversal period. A break below Monday's low at 346.97 would confirm that either a half-primary cycle crest has topped out in a newer primary cycle, or a primary cycle has topped out in an older one. It is still unclear whether the double bottom lows of February 5 and 26 was a contracted primary cycle, or an 8-13 week half-primary cycle off the lows of November 3. If the high forming now is a half-primary cycle crest, then the decline would likely last no more than 3-13 days. If it is a full primary cycle crest, then the decline would more likely last 2-5 weeks.
My bias is that some sort of crest is due in the next week, at price level under 370, and probably under 367, maybe even under 363. Aggressive traders would be encouraged to look to sell this rally, with a stop-loss above 370. However, prepare to cover and reverse to the long side as the half or full primary cycle bottoms by the May 20 critical reversal zone. The price target for the low could be 336.60 ± 5.60, or 328.50 ± 7.50. Anything below the double bottom lows of 311.50-313.25 back in February would turn this market bearish. I don't expect that to happen, but with the Saturn-Uranus opposition coming up next week, anything is possible.
The next MMA European Cycles Report is due out May 19, 2010. |
