The first week of February was nothing less than spectacular, but I think: you ain’t seen nothing yet.
Price has arrived in the standard Elliott Wave target zone, i.e. the area of the lower order fourth wave. This means that one should expect the formation of a bottom and the start of a new leg up. According to my wave count, which of course can be wrong, no guarantees possible, this is only wave four of five. The power and the speed of the sell off though, may be an indication for what will come once wave five is complete!
There are two ways to count the weekly cycle. I prefer to count it as almost complete, consisting of 23 bars, but one can argue that the DAX is in the second weekly cycle since the last Monthly cycle bottom, in bar #10. In the last case it is conceivable that the sell off will continue until price reaches the 200 bar moving average around 10950.
However, in the daily chart the wave down looks complete, and the structure from the November 2017 high is best interpreted as an expanded flat, a corrective wave, part or all of the expected wave four of five. Emphasis should be on “part” because there is no Elliott Wave rule that excludes extension of the correction.
Even under the microscope of the 15 min chart the wave down can be counted as a complete wave.
So, what to expect next?
There are two possibilities, imho. First, wave four is complete, then we will see a new motive wave to all-time highs. Second, the expanded flat is only the first sub-wave of wave four, and then there will probably be a sideways move for some time, and after a while the formation of a new low, and only thereafter a rally to a new all time high. Corrections have way more possibilities than motive waves, and are therefore very hard to predict.
Looking at the Monthly chart I guess it will be the first possibility because an extension of the correction will give wave five a rather unbalanced look. But that’s just a guess.
In the 15 min chart I have drawn a small flag from the low, if it breaks to the upside I call it a False Flag and I consider it to be a low risk buy signal.
Once wave five is complete I expect a really spectacular crash of the market that will dwarf everything we have seen since 1928. The financial system has become so instable by the low interest rates and the boundless creation of fiat money that a hard reset cannot be avoided anymore, IMHO of course, I’m a trained physicist, not an economist. The present situation reminds me of the well known Schopenhauer quote:
THE WORST HAS YET TO COME.
Trade safe, greetings from Ottawa, ON, Canada. I’m really enjoying a great winter here ;).
I’ll be writing again in about a month (or sooner, if anything interesting happens).
added Feb 10:
A nice summing up of the decline from another, non-technical, perspective by Mohammed El Erian:
And another blog I like to follow:
added Feb 14:
A break of the flag from the low to the upside would be a bullish signal, and a first confirmation of the analysis above.