World bourses rally as European leaders clinched deal

European leaders managed to finalize a deal that they hope will mark a turning point in their debt crisis.

After more than 8 hours of tense negotiations on Wednesday night, the leaders were able to close a deal with banks and insurers, requiring them to accept a 50% losses on the Greek bonds when they swap their bonds in January 2012. This is practically a default on its debts by Greece. In addition to this, Greece will be given another new euro 100 billion loan.

To cushion the losses, banks and insurers were asked to raise euro 106 billions by June 2012.

The last measure is to reinforced the bailout fund to effectively put up a euro one trillion firewall to prevent Italy and Spain from being dragged into the crisis.

It is hard for an engineer like me to understand why stocks should rally because:-

1) Greece is allowed to default on its debts
2) More money is given to Greece
3) To standby one trillion euro to bailout Italy and Spain when need arises.

I prefer to look at the chart to gauge what is the most probable outcome.


The French CAC40 shows that the higher degree 500 points wave 2 of the major C rebound is almost there. This surge can be the last kick to end the wave 2.


German DAX is telling the same story. The down trend since the April peak has great similarity to that of the decline from 2007's peak.



FTSE 100's wave 4 rebound has reach an acceptable magnitude for a rebound wave. Watch out for a 'Head and Shoulders' formation.

Even with the latest surge in the indices, the major wave C formation remains intact. However, once the magnitude of the current run-up becomes too big to be a wave 2 or wave 4, I will really have to look for alternative wave counts.



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