Dec 022008
 

The headline in Dealbook reads “Deutsche Rejects a Rescue, Even as Its Shares Tumble” and this prompted me to take a look at its chart. (meanwhile Goldman Sachs is said to face a $2 billion loss in Q4!). Back to DB, where you will observe an extended third wave (being 2.618 times the first wave) was completed at 27.96. By now you would have sensed that Elliott Wave analysis of stocks is more an art form, and we use Fibonacci ratio more as a confirming tool. With that in mind, can we label the recent low at $22.45 as an irregular ‘b’ wave? I think it is a reasonable guess. SInce wave 2 was a ‘flat’ correction, we should expect wave 4 to be a complex pattern, and an irregular ‘b’ wave will be just what Elliott ordered. If this is correct, a ‘c’ wave will take us marginally above the $50 level before a fresh bout of selling takes us down. Judging by the article in New York Times, that can coincide with DB finally bowing under pressure, and approaching the regulator for capital infusion. But how do we trade this stock from here? Should we buy some here for the potential move above $50 (capturing the 66% gain that seems to be offered if we are right?) I would suggest that any brave heart who attempts this trade should keep any long positions rather small, mainly because it is against the trend. I would more heartily support a short sale near the $50 level, especially if we get there directly. We shall see how it goes. Keep this in your watch list for now. Ramki

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