German DAX30 stock index has been one of the weakest so far this year. I’ve been arguing for the past couple of months that if the price of DAX is falling it’s hard to be bullish on stocks as an asset class (see Winter coming?). Many people are refusing to accept that we could see a deeper correction. The same goes to the perma bear camp that refused to accept higher prices until the end of this September.
I, on the other hand, like to keep an open mind and if prices are falling, why not shorting them. They’d fall anyway and it doesn’t do me any good if I’m observing on the sidelines. However, long or short, bullish or bearish, one must respect risks and be willing to accept things could change in a heart beat. Like we did in the first week of October this year.
Like the US FAANG stocks, the bread and butter of their equity market, the German blue chip companies, their auto industry, could be facing turbulent times going forward.
Let me start with a luxurious Bayerische Motoren Werke or BMW for short. Here is a weekly log chart.
We see that the trend is clearly starting to turn lower accompanied by relative weakness, negative momentum and a lot of damage on the chart. It’s just breaking below a multi year support that has held ever since breaking out in 2013. My view is that while the price is below €75 there is a good chance of the stock price falling to €50 per share.
Next chart looks much weaker. This is a weekly chart if Daimler, another company that’s producing luxury cars, of which Mercedes-Benz is probably best known.
While Daimler’s price is below €55-60, we should be expecting lower prices and not be surprised if sometime next year we wake up and see the stock trading at around €30 per share.
And let me finish with a weekly chart of Volkswagen, the second biggest car manufacturer in the world.
This stock has been causing a lot of headaches in the last decade if you were invested in it. It’s going nowhere and the best possible strategy for this stock was not owning it. It’s still best not to touch it until it gets out of this range. And if it breaks down, then man… this wouldn’t be a good sign for the world economy. I’d argue that below €130 you want to short the hell out of it.
But on the contrary, I’d hope I’m wrong and I’ll have to be buying it above €200 (I’ll let others play with it while it’s in the range). As said earlier, I am open minded and I’ll go with the market. As soon as facts change, even if that’s as early as tomorrow, I’ll change my mind. But until they do the path of least resistance is lower. I need to respect that. Will you?