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Trade Idea: Why the Greek Mess can be a nice opportunity – LONG DAX
Started:June 24th, 2015 (08:32 PM) by 1Week1Trade Views / Replies:585 / 1
Last Reply:June 24th, 2015 (08:32 PM) Attachments:0

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Trade Idea: Why the Greek Mess can be a nice opportunity – LONG DAX

Old June 24th, 2015, 08:32 PM   #1 (permalink)
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Trade Idea: Why the Greek Mess can be a nice opportunity – LONG DAX

This is an analysis I made the week ending 06/19 but I think this is still valable.
You can check my blog (my name) and you will see others.

The DAX was just around 11 000 as I am writing this article. I recommend to be LONG. Horizon: a few weeks. Target: 12 000
News since my recommendation: nice little rally, some slowdown today but I think it should continue.

  • Sell-off has been too much. Fundamentals are no longer correctly priced in the market
    The situation responsible of such situation is about to be solved
    Graph show a nice support. Rebound expected on it
    Long-term investors(smart money) are staying confident. We little fishes should follow the big sharks

For my first trade recommendation I have to deal with a “fun” situation. People are nervous about the possibility of a ‘Grexit’ and European markets have been experiencing severe down pressures. Investors have been selling for the past weeks and, for instance, the DAX has entered the ‘correction territory’ recently.

I am happy to begin my blog in such a time of volatility! As you may know (or you will soon notice), volatility is a bless for an active investor. And I am determined to show you that even in difficult market, if you carry a consistent (but simple analysis), use one or two tips/tricks to confirm the idea, you will make profits.

It is the occasion to tackle one of my personal favorite way of investing: buying when the price has been experiencing a serious downturn. Either after a bear market ( as in 2001 or 2008 for the stock index, or beginning 2015 for oil), or after a political crisis ( Russia in the beginning of this year), those kind of situation are a great opportunities to attain huge returns. Why is so?

The market tendency is to overreact in regards to bad (or good) news.
As a result the sell-off goes too far and the fundamentals are no longer correctly priced into the market.
The mean-reverting theory describes well this effect
(I will write a specific article to identify such opportunities with much more details. But for now on, let’s work on that first trade analysis!)

After a 11% drop since the 04/10, I consider that it is a good time to have a long position in the DAX. Horizon: 1 month.

(1)The DAX is oversold
I had this trade in mind for some time now. Despite an economy gaining serious momentum, despite the European Quantitative Easing, despite the low Euro, the DAX has been falling from 12 374.73 to under 11 000 between the 4th of April and this week. Yeah Greece is a monster mess, but Germany is a monster growth machine. Just imagine one second a company going bankrupt because the new intern is doing a bad job… Yeah you will see I am quite good at doing nice comparison.

(2) Greek problem is going to be solved, one way or another, really really soon.
Whatever happens, it will be the end of this “selling season” for the market. Best case: agreement is found this week –> huge rally incoming. Worst case, Grexit –> some short term volatility but then the rally will resume.

(3)The graph of the DAX30 is looking good
dax blog

You can see in red the resistance that has been already tested twice. I think that the rebound of today will continue and that the resistance won’t break off.

(4)The volume of exchange on the DAX is not very important
The final reason I have been looking at is not a reason by itself to carry such a trade, but can give you more confidence in it. The volume has been between 100 and 80M over the last week whereas the 3-month average is just over 100M. It means that the selling pressure are coming from short-term investors and speculators. Long-term investor(such as institutional, the bulk of the market) are holding and will be buying with this more affordable valuations. This idea will also be develop in a special article. So many things to write about!

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Old June 24th, 2015, 08:32 PM   #2 (permalink)
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