Home > Uncategorized > Market Notes: 11th September, 2011. Are the PIGS out of the sty?

Market Notes: 11th September, 2011. Are the PIGS out of the sty?

Dollar Index:

In the current up move that began on 4th May, 2011, the $Index has traversed in a range marked by a low of 73.20 and a high of 76.56 on a closing basis.  On 9th September, 2011, the $Index zoomed passed this well defined trading range to close at 77.30.  With that breakout to the top the $ has dispelled any doubts that it is seeking a lower low in the medium term confirming my prognosis that the $ had very little downside from the current levels.  Ideally one would like the $ to come back to test the level of 76.4 to confirm the bottom of the new higher trading range before rallying further.  The new trading range could settle between 76 and 81.  Confirmation of the new trading range should come over the next week or two.

 

French CAC:

The French equity index has been in a long term bear market since 5th September, 2000. The high scored then was 6960.  No, the CAC did not make a new high in 2007 with the rest of the world, peaking out at 6160 in June of that year, well below the previous peak of 6960.  CAC certainly can’t be accused of misleading about the deteriorating fundamentals of the French economy. It nevertheless fell sharply along with the world markets in 2008 traversing a range from 6160 to a low of 2500, which incidentally was the previous trading range top prior to 1994 and continues to be a multi-year bottom since then.  In keeping with its long term bearish trend, the CAC’s rally from the low of March, 2009 has been muted compared to its peers in the OECD peaking out at 4100, some 50% short of its previous top.  The Index is currently headed to test the bottom of the range at 2500 that could come in May of next year.  Is CAC a good indicator of the long-term underlying problems in the France?  Perhaps a look at the DAX provides some clues.  Bulls in France are an endangered species even if the downside is limited to 2500 or thereabouts.

 

German DAX:

The DAX is something of a half way house between the DOW and the CAC, being much stronger than the CAC in performance but not quite in the DOW league. Intuitively that makes sense in terms of the inherent export strength of the Germany economy. To keep the analysis consistent with that of CAC in terms of time frame and wave counts, DAX begins its tryst with the bear in March of 2000 from a top of 8100.  Note DOW too peaked around that time before crashing from the excesses of the tech bubble but made a higher high in 2007.  DAX crashed to low of 2260 in March, 2003 testing the top of its previous trading range prior to 1994 and then rallied along with world markets to high of 8100 December 2007 but failing to make a new high.  DAX’s rally from March 2009 has mirrored that of the DOW in time and strength being significantly better than that of the CAC.  Peaking still to a lower high of 7600, the DAX too confirmed its long term bear market.  Having broken through the support at 5500, the DAX now faces a lower target in the region of 4200 to be reached sometime March, 2012.  Again, the DAX is significantly weaker than the DOW though in far better shape than the other engine of the EU, viz., CAC.  Let us look at one of the PIGS to nail down this analysis.

 

Madrid General:

Madrid began its last bull run in tandem with the World markets in December 1992 going on to make a peak of 1740 in December 2007.  Since then it has been in a free fall but pretty orderly in terms of pattern.  Its current support lies at 800. Paradoxically the Spanish market has bottomed out at the current level of 800 both in terms of level and time.  Expect to see a respectable rally from these levels.  Have the PIGS bottomed out and only the stronger members are left holding the unpaid bills?  [Not going to into the Spanish wave count in detail. But pretty sure we have already seen a near term bottom.] Let us take look at the worst pig of them all – Greece.

 

Greece General:

The Greeks started their rally from a level of 550 in November 1992 along with the rest of Europe and peaked out at 6500 September, 1999. The numbers give you vertigo!  It has been a nightmare since and in fact it would hazardous to speak of any wave counts here given the rather bizarre behavior of the Greeks.  Nevertheless, it is safe to assume that a secular bear market commenced at 6500 in 1999.  If so, we are in Wave III of that bear market with a downside target of 800.  Irony we are almost there and it would be surprising if that support were to yield because it is for all practical purposes the beginning of the last bull market at 650 in November 1992.  The Greeks are already scrapping the bottom of the barrel give or take 100 points.  That sort of ties in with the Spanish market as well.

 

The PIGS are done with pulling the market down by themselves. What remains unresolved is the burden sharing of their revival by the stronger members of the EU who have further room to fall as they reckon with the actual bills.  Overall, you should be looking to cover shorts rather than selling in each of these markets.  Don’t bet on an immediate rally though other than the usual corrective bear rallies till the end of the year.

NB: These notes are just personal musings on the world market trends as a sort of reminder to me on what I thought of them at a particular point in time. They are not predictions and none should rely on them for any investment decisions.

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