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German DAX is tracing out an impulse wave

When I look at the DAX the pattern is a clear impulse wave [(i),(ii),(iii),(iv),(v)]. I think the DAX will rally to 13500 from current level or lower. I say lower because I am not sure wave (iv) is over because it is a bit small. It could go lower near the 38.2% retracement but it is not required. If upward momentume continues wave (iv) is complete and the DAX will rally to complete wave (v). wave (iv) bottom is at 13044.

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We remain long on EUR/USD, I decided to go long because I believe EUR/USD will get a boost from the falling dollar. You know the Fed is increasing the money supply, this is negative for the dollar. Plus the technical pattern is bearish. The positive for the dollar is that the US economy is stronger than the EU economy but this is about to change.

When I look at the EUR/USD chart we have a two-year decline in five waves that ended on October 1st.

 

This pattern is an ending diagonal. After five waves down the euro should rally in five waves [1,2,3,4,5], I think a long term rally is underway. The first bounce wave wave 1, the latest pullback was wave 2 seen on the 120-min chart:

 

We have a perfect Elliott wave inside wave 2, wave 2 is in three waves [a,b,c (circle)] and wave c (circle) is in five waves and there is an extension in wave (v). EUR/USD is now rallying in five waves as the trend is up.


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Stock markets in a corrective wave?

So far today we have a weak FTSE 100 confirmed by the firmer GBP/USD and the weaker S&P 500. If I look at the Dax 30 it looks like the Dax will decline too in three waves similar to the previous decline. This pattern could be an expanding triangle. However the pattern is not very clear, it can be interpreted differently.

 

Biggest Bubble Ever Marks 5th Year of Stock Rally

By Elliott Wave International

Dallas Fed president: Asset-price bubble "may result in tears" for investors.
The 2007-2009 crisis was only the first phase of a historic financial flameout. Today, a Federal Reserve Bank president warns that an asset-price bubble "may result in tears" for investors. Read more.

How To Choose a Reputable Trading Signal Service

Plagiarism is described in Wikipedia as the “wrongful appropriation” and “purloining and publication” of another author's “language, thoughts, ideas, or expressions,” and the representation of them as one's own original work.

Sadly the Internet has provided a platform for unscrupulous people to launch trading signal services, these people have little or no experience and their services should be avoided at all costs. Their plagiaristic process is simple: set up a website, copy content and ideas from legitimate competitors, provide bogus analysis, do some clever online marketing and voila! Unfortunately these people are so savvy with their marketing that it is difficult to ascertain immediately if their system is legitimate.

As a victim of plagiarism, e-Yield which is one of the leading trading signal providers in the UK, is fighting this injustice. I have already caught a few people who copied my research, thanks to the public who alerted me and I am currently monitoring a few websites for more.

7 ways to Spot Plagiarism and Scammers

Before subscribing to any trading signal service, make sure the published content is from a reputable company or individual. Here are 7 signs to look out for:

1. Website

Check the domain name, do they have a proper named website address or is it a free website template? If it’s a free website template, like Google blogspot or weebly, be cautious. A serious professional business would never use a free website template.

Do you know how long the website has existed – is it a new service or an established one? Scammers don’t stay around for long, if the website has suddenly appeared and is new, be cautious.

2. Who is behind the website?

Any reputable website will have the name of the analyst or trader providing the trading alerts. By name I mean their full name including their first and last name. If there is no name or just the first name, be cautious. If a full name is supplied, check their credentials, does the person have a profile on LinkedIn? This is a good place to find out about the person’s past experience and qualifications and to measure their integrity. If the person has no LinkedIn profile, be cautious.

3. Authority

Has the person appeared on financial TV? Do they write regularly for financial websites or do they speak at trading seminars and events? Is the person a member of any professional organisation like the Society of Technical Analysts? A quick Google search using their name will reveal if they are well-known and reputable and in particular if the person has any authority in the field of trading.  If you don’t find anything relevant, be cautious.

4. Contact details

They should supply a contact email address, not a personal one but a corporate email with the website domain name in it. A published telephone number is a plus, it means the person is happy to speak with you if necessary. If no telephone number is available, be cautious.

5. Trading performance

If the trading performance is too good to be true, it’s probably not true. In this case be very cautious. Websites that claim large monthly profits with little or no drawdown are seriously misleading investors. Chances are you won’t replicate their performance and you will probably lose money. For example making 400 points per month is equivalent to turning £1,000 into £3.2 million in just two years (assuming someone trades 1 FTSE 100 contract per £1,000 in the account). This is unrealistic. Some websites use “a good run” of a few months to annualise the result so that they look good, but the truth is a high-number performance is misleading. It’s the same scenario for websites that show profits month-after-month without any negative months whatsoever. This is unrealistic and not based on truth and you should be very cautious.

6. Method of payment

If the website does not accept well known payment methods like Paypal or Worldpay it’s probably because they have a bad reputation and have been barred from having an account, be very cautious in this case. Or it could be that they simply want to avoid refunds. Please note and remember that credit card companies provide some protection against fraud, they can often recover payments and refund your money from the vendors account. It is always preferable to use a credit card for online payments.

7. Other things to consider

A measure of healthy skepticism should always be applied regarding claims made on the internet. Be cautious of the following signs, they are not a clear-cut indication of a person’s integrity:

Appearing at the top of Google does not mean the website provides a good service. Any website that has been optimised for search engines can rank high on Google.

Do not choose a provider simply because they have a large number of Twitter followers or Facebook likes. It is very easy to buy followers and there are many social media tools designed to increase the number of followers, in most case those followers are not real followers or real people.

Money back guarantees are a plus but if the website is run by a scammer chances are you won’t get your money back. Take these claims with a pinch of salt!

I have written this article because I have seen first-hand the tricks unscrupulous people play with other peoples hard work and ideas. For some it’s because they want to create something they are incapable of doing themselves and pass it off as their own. This will not gain any long-term respect nor garner success and they usually disappear as fast as they appeared! So always be cautious.

If you are looking to learn more about trading from a reliable service run by a professional trader with integrity and experience then visit my website www.e-yield.com and get your first month subscription for half price.  If however you decide to choose a different service provider make sure you read the above guidelines.

Thierry Laduguie is FTSE 100 Trading Strategist at www.e-yield.com

Dow-30, FTSE-100 & Dax-30

By Ashraf Laidi

As global equity indices decline 3-4% from their highs, questions emerge on the length and duration of the next pullback. Both the FTSE-100 and the Dax-30 staged a 13% rally into late January from their lows of late November. The Dow-30 rose by the same amount but started its rally two weeks earlier than its German and UK counterparts. It also sustained a 3% decline in the second half of December.

European equities are facing their first event-driven decline since the November declines, which were in sympathy of the US sell-off following president Obama’s victory and the ensuing implications for capital and income taxes. Once UK and continental European bourses rallied on the hammering of a Greek debt swap deal, US equities were left behind to worry about the cliff-on-cliff-off fears ahead of the December 31 deadline on avoiding the fiscal cliff. Meanwhile, European and Asian indices went on to chart +30% gains for the year.

Three months later, as we approach the four-year anniversary the multi-year bottom in global equities, the risk climate is no longer free. Two major event risks loom large into the horizon: the threat of Italy’s elections disrupting the nation’s path to economic reforms; and the possible “sequestration” of $85bn in US government spending cuts if no deal is reached by March 1st.

The consequences for each are grave. In the event that Monti’s centre left-Democrat coalition fails to win and Berlusconi’s rightist coalition takes on power and blocks reforms, Italian bond yields will regain the 5.00% level, reigniting speculation of Italy demanding the Outright Market Transactions from the ECB. Yields on 10-year Italian bonds have already hit a three-month high at 4.9%. The consequences are enormous for yields of the €1.98 trillion bond market to revisit their 6% levels.

In the case of the US, markets are already pricing another last minute solution between Democrats and Republican to avoid $85bn of automatic cuts. The Federal Reserve is keeping an eye, and as Chairman Bernanke indicated today, QE3 shall remain as long as unemployment is not reduced. The combination of continued Fed easing, renewed asset purchases from the Bank of England and the Japanese government’s appointment of the pro-reflation Kuroda, global equities are unlikely to sustain declines of more than 5% from current levels.

The Dow Jones Industrials Index is currently supported by the November trendline, coinciding with the previous resistance (now support) around 13,580. We expect renewed buying at those levels for a fresh revisit of 14,000, followed by 14,550s.

The FTSE-100’s is 50-60 pts above its own November trendline support, may give way to prolonged selling towards 6,080s. The index had consistently lagged behind its European and US counterparts through last year until catching up in late Q4. Just when it caught up with its peers, the FTSE shall require a fresh boost from the BoE to combat speculation of a triple dip recession and the threat of more austerity around the March Budget Statement.

DAX-30 nears the triple confluence of November trendline support, the base of the past four weeks and the intermediate high from September at 7,480s. In order for the DAX to lose footing below 7,300s, we have to see an Italy election impasse drag into late Q2 at the expense of further bailouts from Berlin, Frankfurt and Brussels. Markets will also watch Germany’s PMI indices (manufacturing and services) for a continuation of home-driven domestic demand overcoming concerns of a drag from the periphery. A break below 7,250 risks accelerating losses towards the 55-WMA of 7,050.

 

Ashraf Laidi is Chief Global Strategist at Leading Spread Betting Company - City Index

FTSE 100, Upside Is Limited, Downside Potential

By Thierry Laduguie

The 13-day BTI, one of the most reliable timing indicators, has become overbought which is a sell signal. This indicator does not give a sell signal very often, in 2012 it gave 3 sell signals and they were all accurate. The first signal was on 3 January 2012 and the FTSE 100 declined immediately (-1%). Then on 20 June, the FTSE declined immediately and lost 200 points. Finally, on 10 August this time the decline started two days later and the FTSE lost 200 points. Perhaps one of the most spectacular sell signal occurred in July 2011 see:

 

The 13-day BTI became overbought on 5 July, the FTSE then pushed slightly higher before collapsing. The index lost more than 1,000 points in just a month. As you can see when this indicator is overbought the odds of a large decline increase significantly. I discussed the RSI on the weekly chart two days ago. You will recall the RSI was overbought and is still overbought. Now if you take a look at the daily chart you will see that a new record has been set:

 

On the daily chart the RSI has hit the highest level in 16 years. The last time the RSI rose above 80 was in 1997 in the midst of the great bull market. This shows you how overbought this market is. The message conveyed by both the 13-day BTI and RSI is bearish. Beside the overbought indicators questions must be asked about the weakness of the Dax relative to the FTSE and S&P. The Dax has been the leading index, in the past when stock markets were rising the Dax would lead by outperforming the FTSE. This relationship has broken down, see:

 

The relative strength line at the bottom of the chart shows the performance of the Dax relative to the FTSE. In November -December the line was rising (Dax outperformed the FTSE). But since 2 January the Dax is no longer following the other stock markets, it is still trading around the close on 2 January. A fractured market is never a good sign, it seems German investors are not buying this rally and they know why.

There is enough evidence from the above charts to suggest that the FTSE will correct in the near term.

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Thierry Laduguie is technical strategist at e-Yield

Ahead of German ZEW & IFO

By Ashraf Laidi

Both of Germany’s key business surveys are due this week. ZEW and IFO surveys involve responses from investors/managers (biased towards ECB’s OMT promise, Fed’s QE3, Greece debt swap deal instead of econ/business effect) rather than the PMI, which involves purchasing managers and decision-makers, segmented by output, new orders and inventories.

Starting with Tuesday’s 10am GMT release, is the ZEW survey, which  targets financial market participants and is more influenced by market conditions such as equity markets, bond yields and liquidity, rather than the actual macro indicators, which tend to have more of a lag.

The ZEW expectations index rose over the last four months and is expected to a hit an eight-month high at 12.0 from 6.9 in December.

The ZEW current assessment index remains near two-year lows, attempting to build on its December’s 0.3 rebound to 5.7. It is expected at 6.2.

Due on Friday at 9am GMT is the release of the IFO business survey and its three components.

IFO current assessment is the most “current” coincident indicator of all three components and is the worst performer of all three. This is similar to the ZEW’s current assessment component, which also underperforms its “expectations” component. Hovering near three-year lows, the CA component will be important in revealing whether it will join the other forward-looking surveys into recovery, hence, reflecting improved sentiment and likely leading to expanded spending plans from businesses.

IFO business climate for January is expected to show its third monthly rise, reaching 103 (from December’s 103.4), after hitting two-year lows in October. The index has regained its three–month moving average for the first time since April 2012.

IFO expectations business climate is the highest of all three IFO components, standing at seven-month highs, is expected to reach 98.5 from 97.9 in February.

The charts below clearly show how the expectations components of the both the IFO & ZEW surveys are quick to recover and serve as a better leading indicator for equities and the euro. Considering the 31% rally in the Dax and 11% rise in the euro since June, financial metrics in Germany and the Eurozone are certain to spillover onto further optimism in both surveys and likely to feed into a positive self-reinforcing cycle. Extending into a two-week consolidation with support at 1.3255, EUR/USD eyes a renewed recovery to 1.3380, followed by 1.3420.

 

Ashraf Laidi is Chief Global Strategist at Leading Spread Betting Company - City Index

Yen Shorts, Yield Lows & five-year Cycles

By Ashraf Laidi

Escalating yen shorts against the USD in the Chicago Mercantile Exchange which shows the highest negative positioning in the currency since the June 2007. Back then, USD/JPY was at a five-year high of 124.14, global equities hit new records, private equity deals were raging with extreme leverage and even busts in US mortgage providers were still under the media radar.

Also in June 2007, yields on 10-year Japanese government bonds jumped by more than 40 bps to exceed 1.80%. The yield rally was broad throughout the global sovereign complex, prompting Japanese investors to flee zero interest rates to chase returns abroad. Unsurprisingly, yields on the US 10-year note also a hit a five-year high at 5.32%.

Today, the yen is entering its third consecutive monthly decline amid expectations that LDP Shinzo Abe will force the Bank of Japan into extreme easing of monetary policy when he is likely to win the elections on Dec 16. Stepping up military and construction spending and pressing on the asset purchases accelerator are part of Abe’s goal of attaining a new 2-3% inflation target.

But the missing link remains in bonds. Unlike in 2007, when global yields were soaring in tandem on an overheating global economy and emerging inflation fears, today’s yields are mired by margin suppression, financial repression, interventionist central banks and continuous downgrades of global growth by the IMF and all major central banks. 10-year JGBs remain adrift at generation lows below 0.70%, while their US counterparts are 30 bps above their lows.

With the yen falling at such a pace despite languishing yields may lead us to imply that the current yen sell-off would quickly intensify by a mere blip in global yields.

Yen shorts against the US dollar have hit a five-year of 90,000 contracts. As high as this may seem, it pales to the 188,000 contracts of yen sorts in June 2007. And thus, it may well be that in order for JPY shorts to breach above the 100,000 contracts territory, markets may need some help from further run-up in equities. This could well transpire from a temporary deal on the Fiscal Cliff, a more durable resolution for Greece or the next equity assault on the bears following the latest round of asset purchases from the Fed. Equities may not be at the lofty levels of 2007, but are successfully shaking off the European woes and fears of a Fiscal Cliff. Germany’s Dax index is competing with its emerging Asian counterparts in the +25% YTD territory, the FTSE-100 attempts in breaking the 6,000 level, while US equities remain resilient atop their 200-DAY MAs. We await for the rest of the pieces to fall into place.

 

Ashraf Laidi is Chief Global Strategist at Leading Spread Betting Company - City Index

The Dax Giving Mixed Seasonal Signals

By Kathryn James

The daily chart of the Dax shows the index has broken out above the recent autumn consolidation to a new high just above 7500. This breakout allows a new uptrend support line to be drawn off the June low and recent November low of 6950. 7000 is a strong psychological level, when it broke back in November demand was strong hence a snapper of a rally ensued to where we are today.

The Dax is currently overbought registering 70 on the daily RSI. But with a bullish trend and festive seasonality ahead, consolidation on lower volume could resolve the overbought condition over time, rather than a price correction lower.

But I’m keeping an eye on this breakout. I suspect it could prove false, like the mirror image of the false break down through 7000 in November. The Dax has risen over 500 points in less than one month and much of the seasonal bull is already priced in, profit taking ahead of Christmas is possible and should the selling begin there may well be a rush for these prices.

 

The weekly chart shows the price is fairly near to the resistance high made back in May 2011 of 7600. At the same time there is a negative divergence on the weekly RSI strengthening my suspicions that this breakout may prove false.

 

The monthly chart shows the bigger picture. The sloping resistance line from the 2007 and 2011 has been recently broken and while the breakout looks constructive to the bullish eye and the chart is making good progress overall, there are still both bearish and bullish implications and a clear resolution of the longer-term trend is not established yet.

 

In summary, 7600 is nearby overhead resistance but with an already stretched tape, overbought conditions and divergence on the weekly chart a near-term failure to reach or break this level is more than likely. However, should the Santa buyers continue to dress their windows in a sign of underperformance-rebellion then a pullback in the New Year could well be on the cards.