The German DAX bottomed at 9 304 on September 29th and has been rallying ever since. Yesterday, on October 19th, the index touched 10 205, suggesting the bulls might be ready to wake up. Does this mean one should go long right now, just because the price is rising? The short answer is always “no”. The long one is that you should always follow some kind of analysis, before making trading or investment decisions. Our method of analysis is called the Elliott Wave Principle. It states, that prices move in repetitive patterns. If one knows how the pattern should look like and which of its phases is currently unfolding, he should be able to predict the next one more often than not. Let’s check out what it has to say about the German DAX.
As the chart above demonstrates, the recovery from 9 304 to 10 205 could easily be counted as a five-wave impulse. Impulses indicate the direction of the larger trend. The fact that the pattern is pointing to the upside, means we should expect higher prices in the future. However, not immediately, because the theory says, that every impulse is followed by a three-wave correction in the opposite direction, before the trend resumes. In DAX’s case here, a pull-back could be expected now, since the five-wave sequence seems to be over. The bulls might have to wait a while, before returning to this market.