Strategic trade
Trade view / 11 August 2015 at 23:48 GMT

DAX set for strength, despite European equities decline

Managing Partner / Spotlight Group
United Kingdom
Instrument: DAXEX:xetr
Price target:
Market price:
Background

The declines on the major national European equity markets during Tuesday, August 11 were spectacular to say the least.
 
European equities
 Source: National Bourses

Take the German DAX. It fell by 2.68% on the day as losses in the utilities, chemicals and technology sectors led shares lower. Falling stocks outnumbered advancing ones on the Frankfurt Stock Exchange by 582 to 162 and 38 ended unchanged.

The DAX volatility index, which measures the implied volatility of DAX options, was up 10.60% to 18.88.

It is not as simple as pointing to the unexpected fall in German investor confidence as the ZEW Centre for European Economic Research said its index of investor and analyst expectations, slid to 25 in August from 29.7 in July. The reading is the lowest since November and compares with a median estimate of 31.9 in a Bloomberg survey of economists.

The declines were felt outside of the Eurozone as UK stocks were lower after the close on Tuesday, as losses in the mining, automobiles & parts and forestry & paper sectors led the FTSE 100 lower by 1.06% at the close. The Swiss SMI was lower by 0.91% on Tuesday.

This selloff was inspired by the declines in China and is overall quite irrational. The Chinese authorities will use their vast wealth of reserves and every stimulus trick in the book to drive the economy back on track.

In Germany, the expectation is that GDP data for Q2 due on Friday will show gross domestic product accelerated to 0.5%. The rate of expansion will stay at 0.5% in each of the final two quarters of 2015. So I see that as confirming that the German economic engine is still humming along with no sign of stalling.
DAX
Source: www.investing.com
DAX 10 Yr
Source: www.investing.com

I am buying the DAX and will buy other European markets if Wednesday trade is stronger.

Management and risk

Parameters

Entry: Buy at opening to add to long position, acquired at 10,787.00 on April 1, 2015

Targets: 11,400; 11,470;11,580

Stop: 10,900

Time horizon:
Strategic

— Edited by Adam Courtenay

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Non-independent investment research disclaimer applies. Read more
4y
kom75 kom75
Hello Stephen. After second yuan devaluations do you still want to buy Dax?
4y
Jazzy Jazzy
good question Kom75
4y
Stephen Pope Stephen Pope
Ouch...the opening move is a shock...but I would stress this was listed as a strategic trade...not a day trade or short-term.

As I tyoe this the DAX is 125 points lower than the opening and my average position is now priced at 10,973...I will be flexible with this...but I am not getting just yet.
4y
kom75 kom75
Thanks. As always helpfull
4y
Stephen Pope Stephen Pope
There seems to be an element of levelling out around 11000.

On all the short to medium technical indicators the entire European equity market us a sell. Move to long dated perspectives and "BUY" is the technical view.

Trading this market on a short-term basis is extremely risky . .. tight stops are required...but the intensity of trading suggest stops may be activated.

Goodluck in the market mêlée !
4y
JOSHUA63 JOSHUA63
German automaker are a falling knife or at these prices are a bargain?
4y
Stephen Pope Stephen Pope
Take the three major brands; BMW (BMW), Daimler (DAI) and Volkswagen (VOW3).

The prices for the last three months are BMW -18,67%, DAI -10.51% and VOW3 -18.96%. Now compare top the six month changes BMW -18.94%, DAI -7.51% and VOW3 -16.41%.

On that basis the last 3 months movement is most heavily concentrated in DAI; indeed the price slip today shows the same hard sell on DAI as we see...BMW -3.30%, DAI -3.76% and VOW3 -2.12%.

For choice I would choose VOW3 as it has the benefit of being a volume producer that can compete on price as well having a reputation for building excellent vehicles. However, knowing that the yield at the current prices may be the main lure, look to BMW. The respective dividend yields are as follows: BMW 3.10%, DAI 2.91% and VOW3 2.55%.

I am wary of all auto's as so much hype has been made about great European sales, but all manufacturers are massaging the numbers by pre-registering units with their dealer network, then selling cars that are discounted.
4y
Stephen Pope Stephen Pope
I will be out for much of this morning at a series of meetings...so I apologise for any delay in responding to followers questions.
4y
capetown0108 capetown0108
Great Job.
4y
Stephen Pope Stephen Pope
Hello capetown0108,

What do yo refer to? It has been a painful day ... however, my trade view was based on a long term or strategic perspective...certainly not a day trade. Many in the market seem utterly bemused by the Dollar.
4y
MrScalper MrScalper
hello stephen, from time to time i read your posts, also those which panned out nicely. However, if we speak of strategic perspective in this post, I was surprised by low targets considering the distance of SL from market price the moment of the post. Obviously, I do not want confront your call, its just my take on it
4y
MrScalper MrScalper
and additionally would be interesting, if your call missed SL by some 20pips only, as we have bounced up
4y
vanita vanita
I am still holding Dax ?
Suggest support and resistance.
4y
Stephen Pope Stephen Pope
Dear Mr Scalper, and Vanita

I know the trade call of yesterday on the DAX was not my best moment...but it was strategic...and I did refrain from suggesting we add other European exposure. I am sitting on longs in the CAC and the FTSEMIB but have held fire on those. I think I will wait till tomorrows opening is actually here so that I have the opportunity to see what surprises the PBOC pull overnight.

As for strategic targets, I think my target setting was muddled as I was adding to an old position and I can look to my original position stop loss of 10,200.

As for new targets on the plus and minus side...so this for Vanita as well...

My new levels are downside support 10,800 ... 10680 (This is critical) ... loose this and big drop to 10,261 is in play!!!! Scary stuff if that happens. To the upside... 11,340 ...11,530 ... 11, 750 ... 12,024.
4y
capetown0108 capetown0108
Hello Stephen,
I have no interest of judging, but for me is strange if market which was yesterday in sell off mode and candle was red like " red square " in Moscow, I would call it ready to buy or go long. Just my opinion.
I read sometimes this posts, but I do not follow it at all.
What worried me, that decision to be on meetings and trades goes against me, I consider as strange. I trade using Market Profile and Volume and classic PA, and when I seen China selling, I would be very, very cautious in longs. I traded today instead of it Forex and honestly, I shorted several times and all BE and little loss. If I looked at 6 pm on charts from 7am...I believed in drop and it happened finally. We will see how far, but volume is still in lower levels.
Again, it was just for me strange to have open position and go for meeting.
Regards.
4y
MrScalper MrScalper
is this in the cards? your post was stopped indeed just by a fractio stephen

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