DAX-Approaching the Final Stage of a major longterm bullish advance
From a long-term Elliott Wave perspective, the DAX has been developing a clearly identifiable impulsive structure since the 1970s. During this period, the index completed a first primary yellow wave 1, followed by a corrective yellow wave 2. This completed 1–2 setup established the structural foundation for the DAX’s long-term bullish cycle.
The bearish yellow wave 2 concluded in 2003, marking a major cyclical low. From that point onward, the DAX regained strong bullish momentum and began to unfold impulsive advances on higher degrees. This development initiated the green cycle and expanded into a powerful yellow wave 3, characterized by persistent upside momentum and extended price appreciation.
After a prolonged and mature bullish advance, our long-term count now suggests that the DAX is approaching the final stages of this impulsive phase. We therefore expect the market to top out and transition into a long-term corrective phase in the form of a bearish yellow wave 4. This correction should unfold as a counter-trend movement within the broader bullish structure.
Importantly, the long-term Elliott Wave count remains constructive. Once yellow wave 4 has fully developed and concluded, we anticipate a final impulsive advance in yellow wave 5. This last wave should produce new all-time highs and ultimately complete the entire yellow-degree cycle.
In addition to our long-term outlook, our short-term Elliott Wave count supports this scenario. Lower time frame structures provide further confirmation and add detail to the expected topping process and the subsequent corrective phase.
When we zoom in on our short-term Elliott Wave count, the internal structure of the advance becomes clearly visible. Following the successful completion of green wave 3 and its subsequent corrective green wave 4, the DAX resumed its bullish trend and started to unfold new impulsive advances within the final green wave 5 of the green-degree cycle.
This green wave 5 can be further subdivided into the light blue cycle, providing a more granular view of the price action. After the completion of green wave 4 in early 2020, the DAX initiated an impulsive light blue wave 1, which was followed by a corrective light blue wave 2. The market then advanced in a strong impulsive light blue wave 3, followed by an additional corrective light blue wave 4.
At present, the DAX is developing light blue wave 5, which represents the final stage of the light blue-degree cycle. The completion of this wave will finalize green wave 5, which in turn marks the termination of the long-term yellow wave 3.
Trading Plan:
We currently expect the DAX to be in the final stage of yellow wave 3, ahead of a long-term corrective phase in yellow wave 4. Before this larger correction begins, we anticipate that the DAX will register one final new all-time high, which should mark the formation of a major cyclical top.
At present, the market is unfolding light blue wave 5. Based on our projections, we have identified a defined price zone in which we expect light blue wave 5 to terminate, thereby completing green wave 5 and, at the same time, finalizing yellow wave 3.
This projected reversal zone spans from the 61.8% Fibonacci extension at 26,532.46 points up to the 100% extension at 28,778.78 points.
Should the DAX reach this price range, we will actively look to sell or establish short positions. Our expectation is that a major long-term top will form within this zone, followed by the initial impulsive sequences of the bearish yellow wave 4 correction.
Once a major top can be confirmed, we plan to immediately define a Fibonacci retracement zone, within which we intend to reaccumulate and re-enter long positions in alignment with the higher-degree bullish structure.
At this stage, we are bearish on the DAX!
If the DAX breaks its current all-time high and advances into our anticipated price range, or if relevant structural changes occur within the Elliott Wave count, we will provide an immediate update.
Kind regards,
Monalytics
