In a previous post we argued that the Athens General Index was in wave 4 and that a final 5th wave to new highs was to be expected (http://trading2day.com/?p=150). This index has recently made a new high confirming our bullish view. Another positive sign on a larger degree is the larger trend change that is under way after 2 destructive years. As shown in the weekly chart below, prices are moving according to our wave count we posted a few weeks ago. Nothing has been changed in the chart but only the updated prices.
Prices not only move impulsively upwards, they managed to break out of the cloud. Our initial target is around 1000-1100 level. This 5th wave rally however has no banking help. Banks due to recapitalisation and funding problems have been lagging if not declining during this wave. That is why we have to be cautious until things become clearer in the banking sector in Greece. Most probably, the sector needs time to stabilise and it seems that wave II is going to cover this problem. The third wave is expected to include a huge bank rally.
Taking a closer look at the rising form of this index, we observe an overlapping pattern during the last few weeks. As shown in the daily chart below, prices ended wave 4 exactly where we expected to end and have moved higher since then making higher highs and higher lows.
My view is that the rally will end when the last low and/or the dotted yellow channel line is broken downwards. This happens if 833 price level is broken. Until then I expect at least one more pull back and a new high. There is however an even more bullish wave count that we should keep in mind. If this overlapping move is just 1-2 waves, then an exploding couple of waves 3 of 5 are expected to push the index above 1000 towards 1100 and why not 1200. For this to happen, the sentiment around the banking sector must improve considerably.
As always, thank you for taking the time to catch up on my thinking. If you need help or if you are interested in trading greek stocks, don’t hesitate to contact me.