17/09/2009 – Germany’s DAX: FREE Insight Into Europe’s Leading Economy

Obviously, there’s a major flaw with this logic; namely, it isn’t true. Time
and again, stock prices smolder to near boiling even as economic growth chills
to the bone. (The opposite also holds: Stock prices cool down even as the
economy is on fire.)

Take, for instance, Germany’s main stock index, the DAX 30. On August 13,
Europe’s number one economy reported a .3% rise in gross domestic product (GDP)
— Germany’s first quarter of growth since January 2008. Soon after, the DAX
began to rally and finished the day at a fresh, ten-month high.

In no time at all, every financial media outlet from Wall Street to la-la
land had their story: “Germany’s DAX rose nearly 1% on the GDP data. The big
picture will be one of ongoing gradual recovery through 2010.” (LA
Times)

One problem: the DAX’s bullish flame has been burning since the index landed
at a two-year low on March 9, 2009. YET — the economic
data over those six months has been about as “hot” as the Arctic Circle. Here,
the following news stories from the time say plenty:

• March 24, Wall Street Journal:
  “There’s a slew of evidence that Germany is in an economic
  freefall: A 19% drop in industrial output, a 23% decline in exports, a 35% drop
  in new manufacturing orders, and on. The numbers we’re seeing are just
  mind-boggling.”

(FreeWeek
Kicks Off With Germany: On September 16, EWI launched its first-ever FreeWeek
featuring its youngest subscriber services: European Short Term Update
and Asian-Pacific Short Term Update. Take advantage of this
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• April 30, New York Times reveals
  a 17% year-over-year decline in Germany’s exports and writes, “With 47% of
  its GDP generated by exports, Germany would suffer a severe contraction in its
  economy.”
• May 16, Wall Street Journal:
  “In the fourth-quarter 2009, Germany’s GDP plunged 3.5%; its
  worst performance in nearly four decades.”
• May 17: Tens of thousands of German workers march through
  downtown Berlin to express their anxiety over the alarming increase in
  unemployment: at 7.7%.
• June 29 Associated Press:
  Germany’s GDP has now fallen by nearly 7% in the past four
  quarters with widespread expectations for a 5.5% to 6% contraction by the years
  end.
• July 3 WSJ: “Germany’s own
  recession is the deepest of any major economy in the world, apart from Japan.”
  
• September 8 speech by Germany’s Chancellor Angela Merkel:
  “We are in the worst economic crisis that the Federal Republic of Germany has
  experienced in 60 years.”

You get the picture: During the DAX’s entire six-month long winning streak,
Germany’s economic figures have been bleaker than bleak. The mainstream
correlation was broken in its box along with any pre-emptive opportunity to
position for the uptrend.

That, however, was NOT the case for EWI’s European Financial Forecast.
Here, the following archive of our analysis shows the extent to which
objective analysis of the market’s internal measures keeps traders ahead of the
biggest moves:

March 2009 European Financial
Forecast(release date: February 25)

“We favor the fourth-wave contracting triangle interpretation for the DAX.
The DAX broke through a solid support shelf at 4014 this week so selling
pressure could intensify before we see a notable rally.” The end of the wave v
decline should come near 3440.

March 6 European Short Term Update (ESTU):

“The DAX situation is similar to the entire region. We believe that the
market is closing in on a low; perhaps it’s a week away from finding a decent
bottom.”
On March 9, the index did indeed “find” its bottom at
3588.

March 13 ESTU:

“We must entertain the possibility that the low earlier this week may
hold for a time, weeks or months, and the risk-reward equation is not as heavily
favorable for the bears.”

So, where will Germany’s DAX be headed next? Find out at the
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trend-breaking, and making details about Germany’s DAX for a full seven days.
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