Can DAX join US Stocks in a “Mania Cycle”?

Good day traders!

The German Dax and the S&P500 have maintained a negative correlation during the past few weeks with the US market trading at all-time highs while the DAX losing nearly 7% since the June 20th high. Technically we see the US markets entering into a bullish mania phase with the DJIA in particular breaking above the upper trendline of an EW channel. We foresee that a fifth wave rally to continue up to 24000-25000 as very likely. The indications of the mania cycle are plenty with a recent example being a report by Charles Schwab that clients opened the highest number of brokerage accounts in the first half of 2017 since 2000 as highlighted in THIS ARTICLE by ZeroHedge. Keep in mind that from the 2000 peak DJIA lost nearly 40% in two years and the S&P500 fell nearly 50%. To summarize, I don’t think that top is near yet, as the E.W. model appears incomplete; it suggests more upside in the coming months.

So going back to the DAX and US markets correlation, I think that the DAX can see more upside and join the mania phase as well while the DJIA is trading towards our projected levels. In fact, the DAX came down in three waves to fill the gap around 12000, which can prove to be a good support area. A break above the upper channel resistance line can will provide confirmation that the European and US markets are reverting to a more usual positive correlation. We need to note here that higher prices in DAX imply a lower move for the EURUSD.

Grega Horvat