Technical Update - DAX, S&P 500 and OMXC25
Kim Cramer Larsson
Technical Analyst, Saxo Bank
Summary: As a follow up to Steen's mention of Elliott Wave (EW), let's have a look at where we could be in today's markets.
First some (EW) principles – in short:
- Wave 1 and 2 are often not easy recognizable. Wave 1 is where there is not much positive or negative news. Elliott waves can be both bullish and bearish trends.
- Wave 2 is a minor correction of wave one. It cannot go beyond wave one.
Volume is usually light.
- Wave 3 is usually the largest of the five EW’s. Powerful and often extends wave 1 by a Fibonacci ratio 1.618. Volume is usually heavy.
- Wave 4 is a corrective wave. It usually retrace 0.382 of Wave 3 but can extend further. Wave 4 often consists of three minor waves called ABC. Other combinations also apply. Volume is fair.
- Wave 5 is the exhaustive wave (in commodities wave 5 can sometimes be the longest). Volume less than in wave 3 particularly at the end.
DAX (cash) Index opened above the 0.382 retracement, more or less in the middle of the body gap between 10,438 and 9,864. A close of the gap would signal further upside. However, it could also be the completion of the ABC correction in wave 4 we have seen.
Wave 4 was initiated by divergence on RSI indicated the down trend was weakening and a rebound was in the cards.
On the DAX future/GER30 we can see the fourth wave has hit 0.382 retracement.
OMX C25: Technical picture is identical DAX. Within few points of the 0.382 retracement
For S&P 500 the waves seem to be easy to recognize. We can see that wave 3 extended further than 1.618 of wave 1. It extended 1.764.
If the waves are as I have indicated on the chart, we are in a corrective wave 4 which should take the Index up to at least 2,553. However, there is room up to around 2,775