DAX monthly analysis: Has the market topped?

Intermediate

Double top and beginning of wave C

Looking at the DAX on a monthly chart below, we are seeing rejection of the 161.8% extension, forming a Double Top pattern with divergence on RSI. Minimum Price Objective (MPO) target is 7000, but there is a very strong old resistance, support area around 9000 level.

Elliott Waves are showing the end of the trend and start of the correction. As we completed wave 5 in the end of 2017 and started corrective wave A in an abc formation, then B in an abc formation to make the second top. Usually A is a 12345 wave, but the b corrected over 90% so it is a flat correction. In a flat correction, A is an abc, B is an abc and C is an aggressive 12345. Now c wave starts and should progress in a 12345 formation down.

Candles are showing rejection at the current level and the start of the potential start of a bearish trend.

Dax Chart

Chinese virus and Brexit

Considering that the virus news is not getting any better, we are still looking for a sell off next week. More and more cases outside of China and so far, the virus is hard to contain. The Russian border with China in the East is closed and flights are getting cancelled. Delta in USA announced that it has stopped flights to China until April.

The Chinese stock market will be reopening after the Lunar New Year holiday week. Pre-market is already looking at Hang Seng with a 1.16% loss at the time of writing. Expecting the rest of the markets to follow in a sell off, so far February looks like a very bearish month.

Another point of concern is Brexit as the UK left the EU on Friday 31st at 11pm. There is uncertainty regarding the future negotiations between the EU and the UK to agree on a new trade agreement. Considering that the German economy has been slowing down lately based on PMI numbers (which are struggling to get back above 50), this could put some strain on the markets as well.

One thing that was keeping the markets afloat in January was the earnings season. We saw tech giants do extremely well and that propped up the indices despite the panic from the virus. Below we can see the S&P500 monthly map with statistics of its share components. Great gains for the tech sector, which kept indices up in the USA and DAX followed. But now that earnings are over, that bullishness is priced in and done.

S&P 500

The start of February is looking quite negative with all that is going on. So, trade smart and stay healthy!

Anton Sviridov

Anton is an accomplished Director at Markom Development Ltd where he combines cross functional competencies in staff management, operations planning, customer retention and strategy development. BU...continued

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