Banks are in the headlines – again
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Deutsche Bank (DB) suddenly hit the MSM headlines last week and that had my Headline Indicator (HI) twitching madly. Remember, my rule is when a big story has trended for as much time that the MSM finally take notice and splash it across garish headlines, the trend is about over. And a tradeable event occurs.
Of course, to those in the business, DB along with the other huge German bank Commerzbank has been in big trouble for years, not only from the mis-selling scandals from the sub-prime fiasco eight years or so ago, but from the mountain of non-performing loans they have on their balance sheet. The IMF calls this ‘the greatest contributor to systemic risk from the world’s greatest lender’. With friends like that, who needs enemies?
Investors have naturally shunned the shares since the all-time high of an amazing 150 back in 2008. The chart is a graphic reminder of what can happen to a ‘safe as houses’ widows and orphans share when sentiment has turned
By any definition, this is a crash, which is what I call a market that has lost over 90% of its value. The shares traded under 10 last week and have lost a staggering 94%. But the MSM headlines only appeared last week! Before that, the decline, especially since the 40 values a year ago, was not a point of comment in the media.
The mere fact that it took the MSM years to headline the crash in the shares just highlights how powerful my HI is. Here is recent action:
The low was made on Thursday, just as the headlines appeared (red arrow) – and this low was made on huge volume that indicates a selling exhaustion. Here is a typical article from the Telegraph: “Why is DB now the biggest worry in the financial world?”
In it, a comparison is made to the infamous Lehmann collapse in 2008 – and this kind of talk undoubtedly creates fear in the mind of the reader (the retail investor). And when the small investors finally throw in the towel after a crash of over 90% over many years, the way is clear for a massive short covering exercise of the pros – and the shares jump from 10 to yesterday’s close at 13.
But is this the start of a major recovery? In the above chart, both MAs are still trending down (bearish) but a rally to the 50-day MA at around the 16 area is not out of the question.
But for most of us, this is a market we can safely watch from the sidelines as volatility is sure to rocket up. And we can be sure that when DB appears in the headlines trumpeting its ‘remarkable recovery’ that will mark a major top.
In fact, short-term sentiment is now turning back up if today’s headlines are anything to go by. Here is today’s article; “DB shares jump on hopes of smaller $5bn fine.
The Dow remains on a roller-coaster
The Dow is one of my top trading vehicles even though it only contains 30 companies (the largest caps). Many choose the S&P 500 in preference as it seems to be more representative of the market as a whole. But over the years, I have found the Dow to display accurate touch points on tramlines, precise Fibonacci retracements and clean Elliott waves.
But I confess that recent zig-zag action has had me somewhat puzzled. I have maintained my generally bullish medium and long term stance, but the short term action has had me fooled. But now, I believe I have a resolution. Here is the daily
The summer five up is my big wave 1. The decline is a classic A-B-C to big wave 2 and since then, the up/down action is forming a very nice wedge. And the wedge has five internal waves (green bars) and that means it is close to a final breakout which I expect will be up past the upper wedge line.
What has been happening in this very tricky trading wedge is a battle between the chart support and resistance zones. This is what I mean:
On the left, we have three highs more or less in a similar position around the 18000 level. This level was evidently strong resistance back then. And when the market broke hard above 18000 in July, that resistance level transformed into a support level which would act as a barrier to declines if the market even came back to test it.
Then in August, the market trended sideways and made two lows at the 18300 area, which evidently was an area of support. And when the market broke below that support in September, that level because resistance.
And since early September, the market has been bouncing between the new support at 18000 and resistance at 18300 – 18400. If my wedge picture is valid, we shall soon see one of these levels give way and if the two previous breaks provide a clue, then the break will be severe. And any hard break of the 18000 level should spell curtains for the immediate bullish picture.
And here is another wedge forming in EUR/USD
Yes, I am seeing many wedges in several markets – a sure sign of indecision. But when the wedges break, the moves should be sharp – and tradeable. Here is the daily EUR/USD
Since the lovely kiss mid-August right at the Fib 62% resistance, the market has failed to cooperate by not engaging in a Scalded Cat Bounce, which is normal if the kiss is the usual signal for a resumption of the bear trend.
The fact that the market has resisted a sharp decline (and with yesterday’s reversal off early lows), I must conclude that there is sufficient buying power to prevent a fall – and that could indicate a rally phase lies directly ahead. The key is the upper pink wedge line.
Latest COT data still shows a 2:1 bearish stance by hedge funds and in the past week, they moved to a significantly more bullish position as they evidently expect further upside. There should be many buy-stops at the 1.13 level and if set off, I can see a move to at least the 1.14 area.
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