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The Swiss Market Index. Do not buy it.

The Swiss Market Index was among the many, which took a hit during the 2007-2009 global stock market crash. On the 10th of June 2007 the SMI reached its all-time high of 9550, only to crash to 4242 by March 2009. Now, five years later, it is in the zone of 8420, which is a remarkable recovery. This five-year bull market may be considered to be a sign of strength by economists and fundamental analysts, because what are the odds of crashing again after such a strong rally? But we still remember that in 2007 those same experts were promising us an infinite bull market. We all know what happened next, so maybe the time is right to look at the charts once again and try to find for ourselves, if we should believe them this time. The weekly chart of the Swiss Market Index is given below.


What we see on the chart is a five-wave impulse, which seems to be approaching to its end with an ending diagonal in wave 5. We also have the RSI indicator, showing a bearish divergence with price. According to the Elliott Wave Principle of market analysis, now we should have been expecting a three-wave decline and more rise after it. But this is true only when the impulsive five is in the place of wave 1 or A. In our case here, you can see that we have labeled the impulse as wave C of (B). In order to find out where we are in the bigger picture, we have to take a look at the monthly chart of the Swiss Market Index.

swiss big

And the monthly chart shows that the 2007-2009 decline is in five waves for (A) and we are currently in the end of its corresponding three-wave upside retracement – (B). Despite being a deep one, this correction is way below the point of invalidation at 9550. According to the Wave Principle, after a 5-3 wave cycle, another five-wave move in the direction of the first one should be expected. Looking at those charts we can state that the time can hardly be more inappropriate for investors, because the Swiss Market Index may be heading back to the 4000 mark.

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