FTSE, DAX, AEX, CAC, SMI, Euro Stoxx 50 and Special Opportunities

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[Posted:] Wednesday, February 17, 2010

[Bottom Line:] Strength in regional equity prices exceeded our expectations. Two possible wave counts
applicable to most indices both allow for some further upside, but maintain the longer-term bearish outlook.

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http://www.elliottwave.com February 17, 2010
[German Bund Futures]
German bund futures registered a new all-time high within the past two weeks. They’ve done this while
rallying in what can only be called a corrective advance. As such, we believe wave (B) continues to unfold.
Moreover, as EWI forecasts further difficulties in European sovereign debt markets, it is reasonable to
assume that German bunds will be viewed as a safe-haven alternative during any upheavals. Therefore, we
recognize the potential for additional new highs. We are watching the long-term uptrend in the Daily
Sentiment numbers. A break in that trendline will likely mark the completion of wave (B) in bunds.

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[DJ Euro Stoxx Futures]
The extent of the current rally has negated our previous wave count showing nested one-two waves to the
downside. There are two possible counts that apply to most regional markets at this time. We debated in
earlier editions whether or not a small second wave formed off the January high. Our preferred count now
shows that second wave, which makes five waves completed at the early February low, and therefore allows
for a more extensive countertrend rally at this time. Our alternate count is for the current rally to be wave (c)
of an expanded flat that will carry above the wave (a) high. Both wave counts have similar implications -
potentially more rally and an eventual bearish resolution. The fine print here for the Elliottician is that whether
the current move up is five waves (wave (c)), or three waves (wave ii (circle)), will ultimately determine which
wave count prevails.

We continue to expect a dollar rally (euro decline) to be part and parcel of the move lower in equity prices.
The euro’s attempt to rally now is already faltering, a fact we believe will be reflected in similar downward
pressure in equity prices in due time.

Short term, the current rally may carry up to the 2847 level of the February 3 high before prices turn down
once again.

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[Germany –DAX Index]
The two possible wave counts outlined above apply equally to the DAX index. We’re just illustrating the
preferred count to avoid repetitive discussion. The February 3 high at 5731 is the potential target for this
rally.

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[Great Britain – FTSE 100 Index]
The FTSE 100 has already reached the level of the previous fourth wave at 5305 (today’s high, 5304). I am
not convinced that this rally will have any staying power, but there are no indications yet of a potential
reversal in our short-term indicators.

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[France – CAC 40 Index]
The CAC 40 may bounce up to the 3830 level in this rally. The alternate count shown for the DJ Euro Stoxx
above appears unlikely for the CAC, as the drop into early February would be a very large wave (b) under
that interpretation.

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[Netherlands –AEX Index]
The wave count for the AEX is not pretty. There aren’t five waves down into the low without overlap, which
forces us to consider the expanded flat scenario. But here, wave (b) is larger than we’d prefer. At best,
further price action will clarify the wave count going forward. For now, the implication is a move up to 335
before prices turn lower once again.

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 [Spain –IBEX Index]
The IBEX is struggling to bounce here. We continue to feel that Spain, Italy and Greece present the best
intermediate-term bearish opportunities in the region. If prices were to reach the 38% retracement level at
10804 in coming days that would be a gift for the bears.

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[Belgium –BEL 20 Index]
Last week we wrote, [“The decline the BEL 20 is clearly only three waves so far.”] Well it’s still only
three waves. There ought to be stiff resistance at 2550. If prices get above that level, we’ll have to reconsider
our intermediate-term bearish view on Belgium.

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 [Italy –S&P MIB Index]
Like Spain, Italy is a downside leader for the region. Any further rally into the 22,000-22,500 region presents
a bearish opportunity.

[Edited by Chris Carolan] Wednesday, February 17, 2010

Correspondence is welcomed and appreciated, although I cannot always reply to every note –
ChrisC@elliottwave.com

New Subscriber, or just need a refresher? I've written a few "concept" paragraphs on how I approach the
markets with details about a few custom indicators that subscribers have found helpful. Find them here: <a
href="http://www.elliottwave.com/wave/ESTU-intro" target="_blank">http://www.elliottwave.com/wave/ESTU-
intro</a>

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