Something for the Weekend – Cracks in the DAX?

Whether or not you have kids yourself, you almost certainly were one once. Birthday parties were something I looked forward to. You’d have your besties over on yours and hopefully they’d invite you to theirs. I hear that nowadays the PC brigade bullies parents into having their kids invite the whole class to avoid making any classmate feel left out. I don’t remember any huge issue over this when I was at school. If someone didn’t invite you then maybe you wouldn’t be their friend any more. No way though would I have even considered having the whole class over. Invite the bullies and kids I never even spoke to over? What utter nonsense.

It’s a bit like Merkel’s open door policy. It’s going to end in tears. Although France will probably descend into civil war first as events and global economic decline push European countries further to the right of the so-called centre.

So what’s happened to the German DAX since I last wrote? We know that the DAX has outperformed the FTSE with ease since 2009. It has, unlike the FTSE, made strides into new high territory. But has it been performing in the last year? Let’s review what I’ve said about it (I’ve marked the four articles on the chart by vertical date lines on the candlestick chart):

• In a piece last July I wrote about the DAX: “In any case, had you been riding the wave up to 12,000 on the DAX, why would you still be in now it’s around 11,000? A series of gentle lower highs on the DAX isn’t what you’d generally be buying into, and that sideways movement is a bit too big to be a bull flag now.”
• By early September we were seeing the DAX enter Bear Territory: “The DAX has already crossed the Bear Line gapping down but now rallied above it. Unlike the FTSE 100 though, the DAX did rally over 30% in the first few months of the year, and even at the recent low had simply lost this year’s gains.”
• Two weeks later: “Well the DAX, which don’t forget actually hit bear territory last month, looks like it’s making a Bear Flag. I’ve marked it on the chart for clarity. If it plays out then we can expect big falls this autumn, as in another 20% from this point. This would put the DAX down to 8,500.” Actually it hits 8699.3 in February after recovering from that bear flag and making a significant lower high in Nov ’15.
• A week or so later I called a messy H+S on the DAX. The challenge being to find the neckline!

The P+F shows how messy the H+S is/has been. We can see there a clear series of lower highs, but also a failure to fail completely. A fall below 8,500 and it’s going to fall hard, but it’s not quite made it there yet, just below 8,700 is the best we’ve seen on the downside. For over a year now it’s been flirting with this Bear Line at 9,920.

Given that Germans are now seemingly going to foot the bill for Greece – and to an extent the other PIGS countries and all the migrants (directly or indirectly) – I wonder how that’s going to go down with the electorate?

If we see uncertainty now – and that’s very likely considering 2017 is the federal election year in Germany – then that uncertainty could give us a big downside on the DAX. Other things to watch meantime are the restaging of the Austrian presidential election, so watch for gains on the right there as a sign as to what we can expect in Germany. The French presidential election is next year too. Le Pen must be a favourite, although her party was, some might say, cheated out of wins in the local elections as the other candidates withdrew strategically to stop them winning. Is that so easy with the Presidential election? We shall see. By this time next year we should have a very good picture of the predictable rise of the right as the lack of economic prosperity continues broadly in the region.