Dax sentiment 26.1.2012

Risk/reward

Commerzbank has obviously been the strongest performer during last 20 days.

However, only a little bit over 40% of the stocks have performed better than the index during last 20 days.

Rarely all the stocks are performing positively during 20 day period. Now we have 27 positive performers.

20 day highs divided by lows has been positive too long.

Dax cycle seems to be a little bit high, maybe we are topping soon.

Sales have become stronger lately even the buying has remained high.

Trading volume has been increasing lately.

McClellan Summation Index has been leading the way up. We haven't reached the extreme level yet and anything is possible before the indicator will begin to decline. 

Although, TRIN has been negative already 3 days in a row, which means that the investors have been selling more than buying at these levels.

The moving average of Trin also turned negative. Even it is possible that the market could rise a little bit, the probability of short term market top has been rising. Previous similar cases with Trin has been marked in the below graph.

Overview: at the current situation, the risk for the downside correction is higher than the upside reward. Sentiment has been cautiously bullish for some time, but the economic risks haven't been resolved. The market will become exhausted. So, for now on, during the next 1-2 months we should see correction to 6000, or if the market cannot find any good reason to sell, at least consolidation. It would be wise to step out of long positions or aggressive traders could begin to build their short positions.

Dax update 31.8.2011

A strong day

Dax surged with low volume, which is not surprising. Stocks can go up with low volume, but going down needs bigger volume as you can see. Normally when the volume peaks and index falls, it has been good opportunity to buy.

Extreme sold and bought conditions are still indicating trend change. However, we need to see demand curve to gain, although supply has already turned. It is obvious that investors are still cautious to buy after such a decline in stocks and recent weak economic reports. We need to watch the demand very careful if starts to accelerate, because we still are on the edge.

 The cycle indicator, which is constructed from the previous supply and demand curves, is indicating a turning point for Dax.

We haven't seen any 20-day or 52-week new lows during last 3 days. One interesting measure to watch is the number of individual stocks performing better the actual index. In capitulation and market bottoms, the level seems to peak. Vice versa, when the market tops fewer and fewer stocks are actually performing better than the index. 31.8. we had a situation where 8 stocks performed better than the index. In the above picture, I use 10 day moving average to smoothen this indicator and better showing the trend.

In bear market, it is normal to see 52-week lows and no new highs. Actually, we haven't seen any 52-week highs recently.

Trin peaked to negative level quite strongly, which indicates investors were selling on strength. It still might be the strategy to sell on rebound. Although, strong negative TRIN might be the consequence of low volume.

It seems that investors are in wait-and-see mode. The selling has settled, but still not many buyers. Earnings report season is starting soon and we can see strong rebound. Anyway, these seems a good opportunity to be a contrarian and establish long positions to Dax. I would still remind to put stop loss to the recent market bottom level.

Dax indicators 29.8.2011

Looks like a turning point

Our oversold indicator reached extreme level, that was not seen even during the 2008 financial crisis turmoil. Anyway, the underlying indicator is showing a little improvement as can be seen from the picture below. At this point, we are expecting the law of inertia to bring the condition for supply and demand to "balanced" level. Before we reach the level, Dax has two options: to consolidate or reach higher level. We are expecting the latter to happen.

 20-day highs versus lows showing improvement. As can be seen, the conditions was very abnormal when above indicator (orange line) reached it's minimum point.

 Normalised TRIN made surged nicely to positive levels which is needed to achive higher levels for the underlying index. 

 Ok, the volume hasn't accumulated yet. This would be, the last confirmation for (mid-term) bulls.

Overall the situation looks very promising for bulls. The market could turn into positive before earnings report. The risk/reward for long positions looks very promising at these levels.

Dax 3.8.2011

Individual stocks 1-year performance seems controversial.













Accumulation/Distribution based on the individual stock performance of underlying index suggests very oversold condition.













Another volume based index, Arms Index a.k.a. TRIN, also reveals very oversold condition.













Over 80% of dax companies are trading near their 20-day lows. This suggests good opportinity to short term rebound, or that the short term bottom is near.