Europe: DAX selling pressure
By Colin Twiggs
August 6th, 2014 4:00 a.m. EDT (6:00 p.m. AEST)
Research & Investment: Performance update
ASX200 Prime Momentum strategy returned +20.35%* for the 12 months ended 31st July 2014, outperforming the benchmark ASX200 Accumulation Index by +3.81%.
Returns for July 2014 were 4.67%, so why the decline in rolling 12-month performance? Because performance for July 2013 (11.00%) is now excluded from the last 12 months. Another exceptional month was January 2014 (9.04%). Momentum performance tends to concentrate in a few good months each year which is why we are so averse to timing secondary corrections — if you miss one good month, it will hurt your annual performance.
The S&P 500 Prime Momentum strategy has been running nine months, since November 2013, and returned 8.92%* for the period, compared to 11.63% for the S&P 500 Total Return Index. A sell-off of momentum stocks affected performance since April, but macroeconomic and volatility filters indicate low risk typical of a bull market and we maintain full exposure to equities.
* Results are unaudited and subject to revision.
DAX selling pressure
Germany's DAX is broke support at 9600, warning of a correction to 9000 — and a weakening primary up-trend. Decline of 13-week Twiggs Money Flow below zero reflects (long-term) selling pressure. Breach of primary support at 8900/9000 would signal a primary down-trend. Recovery above 9800/10000 is unlikely at present, but would indicate another advance.
* Target calculation: 9750 + ( 9750 - 9000 ) = 10500
Deutsche Post AG (y_DPW.DE) serves as a bellwether for European markets. Deutsche Post DHL couriers holds a similar position to that of Fedex in US markets. The stock broke support at 24.00/25.00, completing a rounding top. Decline of 13-week Twiggs Money Flow below zero reflects (long-term) selling pressure. Target for the breakout is 20.00*. A down-trend warns of slowing economic activity.
* Target calculation: 24 - ( 28 - 24 ) = 20
Dow Jones Euro Stoxx 50 is retracing to test support at 3000/3100. Breach of support would suggest a decline to 2500 as indicated on the monthly chart. Respect of support, however, would indicate another advance.
* Target calculation: 3150 + ( 3150 - 3000 ) = 3300
A quarterly chart shows the Footsie consolidating in a long-term triangle below its previous high of 6950. Ascending triangles favor an upward breakout, but I would be cautious with the current outlook for Europe. Reversal below 6650 would warn of a correction to 6400/6500.
* Target calculation: 6900 + ( 6900 - 6500 ) = 7300
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