NEW YORK (TheStreet) -- Disdain for the Greeks and their fiscal mismanagement has recently subsided, as the world's focus shifted first to the crashing Chinese market, and then to what's being referred to hopefully as the U.S.'s second flash crash earlier this week.
But let's not forget Greece. Today, we'll examine how the decision support engine can provide insight into Greece's future, and how Virgil's passage from the Aeneid (written a couple of decades before Christ) still has as much relevance now: "Do not trust the horse, Trojans. Whatever it is, I fear the Greeks even when they bring gifts."
The chart zooms in and updates the monthly chart used in a DSE forecast published July 2. That was when the Greek crisis was on the verge of meltdown.
Then, the objective forecast was that the worst was over, and that some Hail Mary news was about to become known, as the pattern of decline from the early 2014 peak was maturing and in need of a multimonth rise.
DSE warned that only buying actions were indicated, as any further decline from the $9 area would likely find strong support in the $7 area, but that the rally out of the $8, plus or minus $1, zone should target $18, plus or minus $1 (the path of blue arrows on that chart).
We can now detail the action since then. It is leading the DSE to warn strongly that a multimonth, corrective bounce has begun, with a minimum target around $14.50 (the Fibonacci 38% resistance level), and a maximum around $19 (the Fibonacci 62% resistance level).
The pattern-recognition component of the DSE labels the entire decline from around $25 to this week's low near $8 as a completed five-wave Elliott impulse. In addition, there is a huge bullish divergence buy signal that just occurred as the price plunged to a lower low in the past month, but it wasn't confirmed at all by the higher low in the stochastics (see the last blue lines at the right of the price and stochastics panes moving in sharply opposite directions during August).
Another occurrence this summer, which is a significant change from the 12 months before, was the price break back above the bold, red downtrend line that has ruled price behavior since the June 2014 lower peak (labeled as II-circled).
The green oval in the price pane highlights a bullish divergence of another, even more important, divergence than that of the stochastics divergence. This divergence shows that the decline since the May peak remained above the bold, red downtrend line.
These two divergences within the green oval and box in the stochastics pane augment each other, and increase confidence that the decline from early 2014 is over -- at least for now.
The 16-month decline has time symmetry with a corrective bounce lasting six and a half to nine and a half months, which gives the DSE's path of blue arrows plenty of time to rise into the $14.50 area, decline a bit toward $11, then rise again toward $19.
This doubling of prices should be considered a Trojan Horse in the long term, however. Investors should take advantage of the gains to exit Greek equity and debt entirely.
That's because the decline following the coming corrective bounce likely will move well below $8.
This implies that the economic environment for Greece between mid-2016 and mid-2018 should be worse than that of this year, when we saw chaotic lines at ATMs during Greece's bank and stock market shutdown. Next time, there is little doubt they will remain within the eurozone.
Let's ask the DSE question, "If I had no money in the Global X FTSE Greece 20 ETF, would buying or selling actions be indicated now?"
The answer is clearly buying actions only. If you are short, buying actions should be used to cover your positions, lock in profits and perhaps reverse to a long position upon a move above $10, or upon a move below $8 (which is not required, but can't be ruled out yet).
If you're flat, buying actions should be used to establish long exposure, using these parameters, for a potential 50% to 100% rise. If you're long, use these parameters to maintain, if not add to, long exposure, as the conditions for selling are no longer present.
However, this next episode of Greeks bearing gifts has ominous implications for the future of this beautiful country. Those living there, or with assets there, should prepare to sell and leave into early 2016, before they and their money have difficulty exiting.
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This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.