A reader recently asked me to give a look at the German DAX Index in terms of a possible Elliott Wave Count to see how it related to the US Equity Indexes.  Here is my preferred count on the DAX Index on both the Weekly and then zooming in on the fractal Daily Count:

German DAX Weekly:

The DAX Elliott count is very similar to that of the S&P 500, with the exception that the topping process in late 2008 wasn’t as clear as the S&P 500 (though the multi-swing negative momentum divergences combined with the breaking of the 50 week EMA was evidence enough that all wasn’t well in the bullish camp).

So the first wave down is a little more complex than that of the S&P 500, and the Second Wave found resistance at the key confluence of the 20 and 50 week EMAs (a great place to establish a short) as well as the 50.0% Fibonacci retracement of Wave 1.

Wave 3 (as I have interpreted it) was just as brutal in the DAX as it was in the S&P 500, and the way I confirm that count is that the “Third of the Third,” or fractal wave 3 of the larger (circled) wave 3 move registered the lowest momentum low on the chart.  This is also considered the “Sweet Spot” or is further known as “Elliott’s Dream Wave.”  You’ll do quite well to seek out and identify “Third of Thirds.”

That being said, Fractal Wave 4 retraced just beyond 38.2% from the top of Wave 2 before bottoming in a “Truncated Fifth” wave (the S&P 500 fractal 5 did not Truncate, but made new yearly lows).

Notice the positive momentum divergence that build under the price on the 5th fractal wave.  That is a clue that we could be looking for short-term higher prices, perhaps in the trajectory of the green arrow I have drawn for the possible larger-scale Wave 4.

Let’s zoom-in on the current structure, picking up in June during the top of large-scale Wave 2.

German DAX Daily:

This count demonstrates more detail into the most recent vicious Third-Wave decline.  Notice again that the new momentum low (oscillator) occurs during the “Third of the Third” wave, which is where the most violent downward price action occurred.

The third wave itself sub-divided and the fractal “v” wave terminated with a positive momentum divergence before the fractal 4 came into EMA resistance.

The Fractal 5 wave itself sub-divided into a full impulse and terminated officially as a “Fith Wave Truncation” into a positive momentum divergence.

It’s possible that we’re currently in corrective Wave “A” of a larger Wave 4 that’s developing, which is quite similar to the structure developing in the US Equity Indexes.

Let’s continue to watch these developments and counts as they progress in real-time, but always be willing and ready to adjust our bias as new information – particularly the breaking of 4,000 into new lows (which could invalidate the count) develops.

Corey Rosenbloom
Afraid to Trade.com