The global markets have been on a strong run up since Christmas. We in Australia have been rising since mid November 2012, up 16.6% in 3 months. Everyone is feeling great. Australian markets show no real signs of letting up this strong run.
Some key questions on are: Do we jump in now? Will it go up further? I/We should have bought last year.
[1]The cross analysis of a very bullish market like Germany as indicated by the German DAX can help infer the answers we seek on our own market but may not seem apparent.
We in Australia rarely determine our own financial fate when it comes to short/medium term swings up or down.
In the long run, we do determine our overall financial health, like being relatively unscathed from the GFC compared to others, but if major global stock markets swing to the downside by 8% or 10%, we’re not going to go in the other direction. We will fall in unison. Usually not by as much, but fall we will.
Long time readers will know, short to medium term is my time frame.
The German DAX hit its recent low on 5 June 2012 at 5,914. It reached its recent peak on 28 January 2013 at 7,871, a rise of 33% in almost 8 months.
If, we, having gone up 16.6% in 3 months, are asking those key questions, so are the Germans.
While, our market is not showing signs of slowing, the German DAX is showing it is ready to fall in my time frame. It is looking like it will enter a selling phase to S on the chart which is up to 6.5%.
The pros and cons analysis below, which is really a break down of bullish vs bearish indicators in that market, indicates there are five bearish signals compared to one bullish signal. The reason for buying now, is not compelling nor good timing on the face of it.
Bullish Indicators:
1) Break out to the upside on week of 3 December 2013.
Bearish Indicators:
1) Daily time frame indicates a pull back is imminent and overdue.
2) Price action indicates point one is building up momentum to see this through.
3) A nice pull back level would be:
a) 7,375 or 2.8% lower. This seems insufficient and too mild
b) 7,068 or 7.9% lower. This takes it to the 200 day moving average. This would be good on the daily.
c) 7,100 is on weekly chart, this seems a good level.
d) Moves below 7,000 need to be viewed with caution and represent stop levels for more bearish action to come. Particularly any move below 6,988 should be viewed with heightened caution of an indicator that more falls will be in the wings.
e) Falls below 6,868 or 9.5% lower will bring into question the future further upside potential of the index. The question, “Is that as good as it gets?” will begin to be asked. The steady as she goes global scenario comes into question.
4) Weekly basis, 3 Dec 2013 broke out on a bullish basis when 7,486 was taken out. A return to 7,468 (that’s not a typo, I mean 7,468) would be positive and take off from here would be very bullish. This seems too little a pull back.
5) Further extensions higher would do damage to future upside potential on a sustained and “Steady as she goes” basis.
Please note that my views are not for the long term. My method results in views expressed that relate to an outlook that lasts weeks or at most months.
It has been some time since I wrote about the DAX – 16 April 2012 to be precise. At that time, it was used in inference to our markets and again, that the global markets were about to fall. On “Switzer” in recent months, I have referred to the extremely bullish nature of the DAX from a view point that it is in need of a pull back.
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.