Did 5 Waves Down Complete on the Shanghai Index?

Mar 29, 2009: 9:06 PM CST

Can we count out a full five-wave structure on China’s Shanghai Index?  Let’s take a close look at the index which has shown strength recently and may be on pace to etch out fresh 2009 highs.

I’ve started the chart at the October peak (which corresponds with the US S&P 500) and noted a quick fractal 5-wave decline which then gave way to an ABC Wave 2 correction that began 2008.

Price then experienced its primary 3rd wave down well in advance of the S&P 500 (Shanghai showed distinct relative weakness for most of 2008, generally falling all throughout the year).  A full fractal 5-wave pattern (which can further be subdivided) comprised this Primary 3rd Wave, which then gave way to yet another ABC corrective Wave 4.

Finally, price extended down to complete another 5-wave decline into the terminal Primary Wave 5 lows in November (just like the S&P 500), but ever since this time, price has rallied strongly and has even officially carved out a fresh uptrend (as evidenced by price highs and the EMA structure).

A lengthy positive momentum divergence has formed under price that preceded the daily chart price reversal well in advance.  Shanghai almost looks similar to Crude Oil’s daily chart in some ways.

Structurally, a Cradle (trade) formed into February 2009 which held, and this preceded the rally off confluence EMA support which flipped the trend back to the upside.

Currently, a 5-wave structure has completed into the end of March, which may be the beginning of a Primary Wave 1.  As for overhead resistance, the 2,500 level corresponds with the falling 50 week EMA (price has already broken above the 20 week EMA).

Watch this index closely for signs of continued strength, particularly if it can break above the 2,500 level.  Until then, watch the EMAs for support and let’s see what China’s Shanghai index has in store for investors.

Corey Rosenbloom
Afraid to Trade.com

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4 Comments

4 Responses to “Did 5 Waves Down Complete on the Shanghai Index?”

  1. Anonymous Says:

    Corey,

    SSE finished with a doji on Friday; price did not break above wave 3’s. It is currently trading lower, not one would expect for a wave 5. I wouldn’t rule out an alternate wave 4 count, in lieu of what you have counted as primary wave 1.

  2. Corey Rosenbloom Says:

    That’s certainly the alternate count.

    Most other global indexes – including the S&P 500 – seem to be missing a 5th wave down and perhaps are currently – like the Nifty perhaps – in a 4th Wave up. China may be showing that as well.

    The reason I posted is – other than because a reader asked – because the 5-wave structure seems so clear, even down to the fractals. Really interested me and I want to see what other readers think.

  3. Anonymous Says:

    Strong neg divergence on the MACD now will cause the next leg down to start. A roll-over.

  4. Corey Rosenbloom Says:

    Good call.

    Though price only tested the recent highs, the 3/10 oscillator clearly made a lower high, which serves as a weaker-level divergence. Odds favor a pullback.