History does not repeat? What if...?
When GER30 hit the 25Y trend line (9.8 CAGR) the correction started as expected by a few market participants. If you follow the discussions you hear a lot of stories like algo-driven-correction etc. and that this is just a short term correction. But what if it is just like the start of the badly needed correction? In this case we would see some more small corrections in the range of 11,300 - 11,800 GER30 before we would see a retracement till 12,400 - 12,800. After the retracement we would see further lows. If we see that the GER30 goes below the support line, it is likely that we enter a new bear market. Sounds unlikely like the anticipated correction a week ago... Of course this is not an advise it is just my personal opinion.
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If you are asking what would be the trigger of a new bear market since we have a booming markets etc. Keep an eye on the Lombard credits especially in the Asian region (corporate Lombard facilities). The correction itself is the thread which can become a problem for many SME corps. and for financial institutions.
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I like history...
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For those who are still interested in the chart I drafted. Some developments which might support the scenario:
1. Economic cycle: As most of you already know - hedge funds started to short sell massively the DAX and other European indices. They argue that the German economy but also the European economies are getting closer or are at the end of a period of expansion.
2. Asia: First scenarios have been published by banks (e.g. Deutsche Bank) about the over-indebtness of Chinese companies such as HNA Group, which might become a threat for Chinese financial institutions and financial system itself (don´t forget the Lombard facilities). Germany as an export nation would be affected immediately.
3. Trade war: Trump became an accelerator recently by risking a trade war between US, Europe and Asia. He already decided to increase import duties on steel and aluminium but he does not mind to threat to increase import duties on automotive industry etc. as well. This creates a lot of uncertainty and this is poison for the stock market as you already know.
4. Yields: We see a further increase of the US10Y yields which puts a lot of pressure on pension funds to review their current asset class allocation (shift from shares to bonds). Currently this effect (shift) is compensated by the increased demand of US corporate buyback programs triggered by the US corporate tax reform. But this effect might not work for ever.
5. Italy: Italy´s state debt is already 130% of the GDP. Yesterday election took place in Italy and none of the parties standing for election plan to decrease the state debt. Further, the right wing parties - who won the election without a majority - are critics of the EU. This creates additional uncertainty, nevertheless is puts pressure on the EUR (EXY) which has some positive effect on the German exports.
6. Automotive industry: The German Federal Administrative Court has decided that driving ban for Diesel cars is legal. This puts a lot of pressure on the German automotive industry and reveals on more time that the German automotive industry overslept the development from fossil propulsion to electric cars. Instead of producing head titles about innovation the German car industry is producing just head titles about old technology.
1. Economic cycle: As most of you already know - hedge funds started to short sell massively the DAX and other European indices. They argue that the German economy but also the European economies are getting closer or are at the end of a period of expansion.
2. Asia: First scenarios have been published by banks (e.g. Deutsche Bank) about the over-indebtness of Chinese companies such as HNA Group, which might become a threat for Chinese financial institutions and financial system itself (don´t forget the Lombard facilities). Germany as an export nation would be affected immediately.
3. Trade war: Trump became an accelerator recently by risking a trade war between US, Europe and Asia. He already decided to increase import duties on steel and aluminium but he does not mind to threat to increase import duties on automotive industry etc. as well. This creates a lot of uncertainty and this is poison for the stock market as you already know.
4. Yields: We see a further increase of the US10Y yields which puts a lot of pressure on pension funds to review their current asset class allocation (shift from shares to bonds). Currently this effect (shift) is compensated by the increased demand of US corporate buyback programs triggered by the US corporate tax reform. But this effect might not work for ever.
5. Italy: Italy´s state debt is already 130% of the GDP. Yesterday election took place in Italy and none of the parties standing for election plan to decrease the state debt. Further, the right wing parties - who won the election without a majority - are critics of the EU. This creates additional uncertainty, nevertheless is puts pressure on the EUR (EXY) which has some positive effect on the German exports.
6. Automotive industry: The German Federal Administrative Court has decided that driving ban for Diesel cars is legal. This puts a lot of pressure on the German automotive industry and reveals on more time that the German automotive industry overslept the development from fossil propulsion to electric cars. Instead of producing head titles about innovation the German car industry is producing just head titles about old technology.
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We just hit the indicated 11.750 DAX
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US30 completed HS pattern. Correlation between GER30 and US30 has decreased within last days.
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As you can see from the chart above we are currently riding the correction along the first support line. I just posted a chart on DJI if we close below the EMA 200 D we might see some more sell offs which could lead us also to the next support line for the GER30, i.e. to the area of 11.300.
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Scenario is still valid but we lost the initial momentum and it takes much more time than expected. Right now the behaviour is more like 2000-2003 and 2008-2009.
All six points mentioned above are still valid and we can add Turkey as well as related concerns of the some central banks (financial stability/chain reaction).
All six points mentioned above are still valid and we can add Turkey as well as related concerns of the some central banks (financial stability/chain reaction).
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It is quite interesting how well this idea worked out. Another thing is, how we moved from the "conservative" scenario towards the "fast paced" scenario.
And all six points mentioned above are still valid...
I hope you are still enjoying it - I do :)
And all six points mentioned above are still valid...
I hope you are still enjoying it - I do :)