global stock markets outlook for 2016 part 2 melt up before potential correction 1791152015

We have determined the expected direction and key long-term strategic  technical levels for the leaders (U.S.) of the current primary bull cycle for equities. Please […]

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By :  ,  Financial Analyst

We have determined the expected direction and key long-term strategic  technical levels for the leaders (U.S.) of the current primary bull cycle for equities. Please click on this link for  Part 1.  Now, let’s us now take a tour to Europe.

Germany DAX 

DAX verus Eurostoxx_29 Dec 2015

DAX_monthly_29 Dec 2015

DAX_weekly_29 Dec 2015

DAX versus MSCI World _29 Dec 2015(Click to enlarge charts)

Key elements

  • The German stock market’s outperformance against the rest of the Eurozone’s markets has peaked in March 2015 as seen in the long-term (weekly) relative strength chart of the MSCI Germany ETF verus the Euro Stoxx 50 ETF. Thereafter, it entered a lull period due to the summer sell-off and the Volkswagen emissions scandal. In Q4 2015, the MSCI Germany has started to show signs of outperformance after its relative strength chart rebounded from the median line (support) of its ascending channel in place since March 2003 low. In addition, it has also broken above the rising 20 and 50-week Moving Averages.
  • The summer sell-off that lead to “Black Monday”, 24 August 2015 has managed to find support at the rising 34-month Moving Average and the trendline support from March 2009, the start of the primary bull cycle at 9600 (see monthly chart of DAX).
  • However, the long-term (monthly) RSI oscillator that measures price momentum has broken below its corresponding trendline support (in dotted green). This observation indicates a pre-warning signal that upside momentum has started to wane and a potential major top in the DAX is round the corner (see monthly chart of DAX).
  • Since the September 2011 low, the DAX has been evolving within a bullish ascending channel with its lower boundary (support) at 9600 and upper boundary (resistance) at 13100/13340. Interestingly, the 13100/13340 also confluences with multiple Fibonacci projections derived from different swing lows (see weekly chart of DAX).
  • The weekly (long-term) RSI oscillator has continued to stage a rebound from its support zone and still has room for further potential upside before reaching its extreme overbought level. This observation suggests that price action of the DAX can still undergo a potential multi-month upside movement (see weekly chart of DAX).
  • Interestingly, the relative strength chart of MSCI Germany ETF versus the MSCI All Country World ETF has just rebounded from the support of a “Symmetrical Triangle” range configuration which advocates a potential outperformance versus the rest of the world in the current phase of DAX’s expected multi-month upside movement in place since 29 September 2015 low.
  • Based on the Elliot Wave Principal and Fibonacci analysis, the current upside movement from 29 September 2015 low is likely to be the final wave V of III/ to complete the current primary bull cycle that started in March 2009. Thereafter, a potential multi-month correction should materialise (see weekly chart of DAX).

Key levels (6 to 12 months)

Intermediate resistance: 12390

Pivot (key resistance): 13100/13340

Support: 9600/9320 & 8500/8100

Strategic outlook (6 to 12 months) for DAX

Based on the above mentioned technical elements, the DAX may shape a potential final push up to retest the March 2015 swing high at 12390 before targeting the pivotal resistance zone of 13100/13340. Thereafter, a potential correction is likely to occur towards 9600/9320 before 8500/8100, the key long –term pull-back support area that was a former resistance that capped the advance of DAX from March 2000 to April 2013.

However, a clearance above the 13340 (upper limit) long-term pivotal resistance (a weekly close above is required) may invalidated the preferred corrective scenario to see the continuation of the primary bullish cycle to target 14760/15350 next.

Source:  Charts are from eSignal


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