The resilience of the German 30 index (tracking the DAX) continues to amaze. Markets appear to think the German 30 will remain immune from woes in Europe. After a bearish reversal on Friday, the only question for me is whether to short outright or in a pairs trade with the Australia 200 index.
The daily chart shows the action:
German 30 – Daily
The fall on Friday breaks the recent positive momentum. Recently published investment flow data suggests that international flows into European stocks have all but dried up. Over the last year, the German index appears to have be benefited from intra-Europe rotation – European investors taking funds out of southern European markets (Spain, Italy, Greece, Portugal etc) and re-investing in Germany, the “strong man” of Europe.
However, the idea that German companies will somehow remain immune to a contraction in the Eurozone economies is a stretch. With the German 30 trading on a P/E over 14 times, I’m happy to look at a sell on open today after Friday’s fall.
For traders looking to limit overall market exposures, there is an alternative. Here’s a comparison chart:
German 30 vs Australia 200, Daily
The recent outperformance of the German market is hard to explain in logical terms. The Australian economy has higher growth levels, the index is trading on a lower multiple, and the “bottom up” view of companies is more positive.
Given stocks globally are constrained by the risks in Europe, for me the following roughly value neutral trade is a “no-brainer”:
Sell 100 German 30 Index at the European opening AND
Buy 150 Australia 200 Index simultaneously.
CMC Markets Blog 
Agree, stopped out of eur and usdchf, got short DAX 6773, stop 6883 on Friday and attempted S&P as well but missed by a whisker at 1374.4, playing defensively will take some profit on dax at 6475 move stop to breakeven and leave the rest to run… will have two risk free position shorts looking for ~5400 last target…
Here we are 14 hours later and presumably you’ve taken profit – nice trade DV.
Thanks Michael, yes risk free and playing with market money (the best trades…) re-entered short again on USDCHF last night – after just losing on it, based on longer term setup (weekly chart) fib butterfly into a supply level = high potential R:R/ low risk trade, so now a wider stop about 133 pips (so small very size). T1 around 95.10, T2 = 90.50. I don’t re-enter losing trades for ‘revenge’, This short setup is still valid but on a higher time frame with wider stops/ targets… looks cleaner than eurusd right now…am still long eurgbp (but underwater) and short gbpjpy since 2 July which has been a very nice short trade from 125.25 looking for just above 120ish. If the S&P doesn’t get back to 1374 in the next two days I will cancel the short
Hi Michael , How did you over lay one chart over another ,with the tracker platform. Have been trying to do this for a while. Thank you.
Hi Rod – as a Tracker platform user I’m sure you already know that most features are “drag and drop” – and this one is no exception. If you’d like to overlay two (or more) instruments, simply open the chart of one(from the library or a watchlist) and drag and drop the other instrument(s) into the chart.
What a neat trick. Didn’t know you could do that. Just overlayed US SPX 500 on German 30 and they have tracked each other very closely since April. On the other hand the Australaia 200 diverged in December last year and is now ranging 12-16% lower. Great trade.
Agree Douglas – its a useful tool. We see a lot of this style of trading now – think its the lower overall risk of the trade that appeals