IG Index the Changing Balance Between FTSE and DAX

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SEVEN DAYS AHEAD Professional trading guides and recommendations for the World's markets

Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573E-MAIL [email protected] WWW.SEVENDAYSAHEAD.COM This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sourcesbelieved to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness oraccuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold orheld on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein wereconsidered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,relationship or arrangement in relation to them.

In association with

Market Update 6th January 2011

The changing balance between FTSE and DAX

The Macro Trader’s view:

From early September into mid-December the German DAX enjoyed a strong bull run

supported by a strong economic recovery, which helped pan-Euro zone economic data mask

the plight of many other Euro zone economies that were at best enjoying a modest recovery.

Or, more typically, were gripped by the Sovereign debt crisis that has forced Greece and

Ireland to seek a rescue. And to shelter under promises made by China to keep buying their

Sovereign debt.

The FTSE has rallied too, but the move has been less dynamic. Even though UK Q3 GDP

grew by 0.7%, following an even stronger Q2 GDP report of 1.1% or 4.4% annualised, which is

more than respectable. But unlike the DAX, the FTSE suffered a steep correction throughout

November.

Yet for all that, over recent days the FTSE has pushed higher, just when UK data has begun to

support the fears of many analysts that the UK economy could struggle in 2011. And now, the

DAX is now showing signs of fatigue if not vulnerability even though German data remainsalmost uniformly positive.

For answers to this growing divergence from previous trends we must look beyond the UK and

German economies. In the case of the DAX, the Euro zone economy is under close scrutiny as

the Sovereign debt crisis continues to rumble on. The Germans have turned down requests to

allow the issuance of Pan-Euro zone debt in place of national Euro denominated debt as a

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In association with

means of solving the crisis. Moreover they continue to push for hasher terms to be applied toany new bailout requests from failing Euro zone member states.

The story now on many lips in the markets is: can the Euro zone survive at all or in a reduced

state, with or without Germany. Germany seems to think the way forward for the Euro zone is

for all member states to adopt the German export-led, suppressed domestic demand economic

model.

This model may work for Germany since it already has established world-class export

manufacturing industries that fuel growth and allow her to run large trade and current account

surpluses. But what do the majority of the peripheral states have to offer that would allow them

to adopt this economic model? We think very little and the result would be years of deflation

and austerity.

But what of the FTSE? The UK is implementing one of the most severe austerity programs

ever, with public spending slashed and VAT hiked. So severe is this program that there are

real fears the economy will not be able to cope, but this environment isn’t retarding the FTSE .

Why?

Over recent weeks the US economy has begun to publish strengthening data, and many now

judge the US economy is about to emerge from the long period of economic under

performance that forced the Fed to start a QE2 policy and Obama to agree to an extension of

the Bush tax cuts.

The result could prove dramatic. If the US economy can join the Chinese and Indian

economies and start to experience strong growth, demand for raw materials and energy will

move up to a level never before witnessed. That is because this would be the first economic

cycle where the US has two new large nearly-emerged economic powerhouses competing for

market share.

Over many years has evolved from being a parochial stock exchange to an international

market place where many foreign companies seek either a primary or secondary listing. This is

the advantage the FTSE has over the DAX. Consequently, as demand grows internationally for


















In association with

energy, raw materials and commodities of all types, the companies that supply them will seetheir equity in demand and this will help underpin the strength of the FTSE.

This year then could well see the FTSE outperform the DAX even though the UK economy

may underperform her German counterpart.

The Technical Trader’s view:

A M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011

3000

3500

4000

4500

5000

5500

6000

6500

7000

7500

8000

8500

9000

9500

10000

10500

11000

11500

38.2%

161.8% 61.8%

261.8%

6802 High

5796 HIgh 5892.50 High

FTSE 100 Index LIFFE Continuous

FTSE MONTHLY CHART

The FTSE is very well set-

up.

A large Head and

Shoulders pattern has

completed and looks to be

driving the market better –

as far as 8500 or so.

In the short and medium-

term too, the price action is

compelling for the bulls -

see how the market has

overcome both the Prior

Highs at 5796 and 5893. (

and a Fibonacciresistance) Both these

Highs will be powerfully

supportive on any pull-

backs


















In association with

M J J A S O N D 2008 A M J J A S O N D 2009 A M J J A S O N D 2010 A M J J A S O N D 2011 M

20000x10

3500

4000

4500

5000

5500

6000

6500

7000

7500

8000

8500

61.8%6347,59,91

Low 7220.50 Resistance

DAX Index Continuous

DAX WEEKLY CHART

In many respects the DAX

has been ahead of the 2009

rally in the FTSE, having

overcome the same 61.8%

retracement resistance

weeks earlier, but the clear

over head price action

resistance and resistance

from the Prior low at

7220.50 is a warning to theDax bulls.

Also, there is no equivalent

underpinning to the H&S

reversal pattern in the

FTSE.

Comparing the short-term

price action between the

markets is even more

intriguing.

26 2 9

August

16 2 3 30 6 13

September

20 2 7 4 11

October

18 25 1 8 15

November

22 29 6 13

December

20 2 7 3 10

2011

17

50000

100000

150000

5750

5800

5850

5900

5950

6000

6050

6100

6150

6200

6250

63006350

6400

6450

6500

6550

6600

6650

6700

6750

6800

6850

6900

6950

7000

7050

7100

7150

7200

7250

7300

73507400

6919.50 High

6700 High

Prior High support 6409

Prior High support 6360

Prior Low resistance 7220.50

(August 2007)

High 7105.50

DAXI ndex Mar 11

DAX DAILY CHART

The sideways price action

throughout December is

clear and notable.

The drift has taken the

market back to the support

from the Prior High in Late

November ….

















Authorised and Regulated by the FSA 124 REGENTS PARK ROADLONDON NW18XL TEL +44 (0) 7849 933573E-MAIL [email protected] WWW.SEVENDAYSAHEAD.COM This information memorandum has been prepared solely for informational purposes for customers of Seven Days Ahead and is based on publicly available information from sourcesbelieved to be reliable. It is not an offer, recommendation or solicitation to buy or sell, nor is it an official confirmation of terms. No representation is made as to the completeness oraccuracy of any statements or forecasts contained herein and no responsibility or liability is accepted for losses arising from transactions undertaken or investments purchased, sold orheld on its recommendation. Consequently, any persons acting on information contained herein do so entirely at their own risk. Although the opinions contained herein wereconsidered valid at the time of release, financial markets are subject to rapid and unexpected movements. Seven Days Ahead, its associated companies, their directors, employees,other customers or connected persons may from time to time undertake transactions or deal in investments mentioned in this information memorandum or have a material interest,relationship or arrangement in relation to them

In association with

26 2 9

August

16 23 30 6 13

September

20 27 4 11

October

18 25 1 8 15

November

22 29 6 13

December

20 27 3 10

2011

17

50000

100000

150000

200000

5350

5400

5450

5500

5550

5600

5650

5700

5750

5800

5850

5900

5950

6000

6050

Prior High 5653

5846 High

5482 Low

5810

5872 High

5796.50 High from April 2010

5983.50 High

FTSE 100 Index Mar 11

FTSE DAILY CHART

But the FTSE is a great deal

higher than it was in early

December, bouncing from

the support of Prior Highs in

the manner of a well-

constructed bull trend.

Mark Sturdy

John Lewis

Seven Days Ahead














IG Index the Changing Balance Between FTSE and DAX

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