Elliott Wave Analysis on the Shanghai Market Monthly & Weekly

May 30, 2009: 12:07 PM CST

A couple of readers have asked me to provide a possible Elliott Wave count on international market indexes, namely the Shanghai Composite ($SSEC) and here is my current count on the larger monthly and weekly timeframes.

China’s Shanghai Index ($SSEC) Monthly:

This count assumes that we are still in a large corrective phase.  The 5-wave primary structure off the 2005 lows is quite clear (it has its respective fractals on the lower timeframes) and almost intuitive into the 6,000 highs just before 2008 began.

From there, one can take one of two assumptions:

1)  We are still in a corrective phase, as I am showing, that we are currently in Corrective Wave B up into confluence resistance, waiting for a (smaller) Wave C to begin.

2)  We have completely finished the corrective phase in all of what I have labeled as “A” and we are in a new Primary Wave 1 of a new bull market.

Either way you interpret that, the next likely “swing” is expected to be a down-move off confluence EMA resistance at the 2,750 level (whether it’s down for Wave 2 or down for Wave C).

When I apply Elliott Wave to long-term charts, I want to look for confluence among wave counts (as I showed above) and be open to any logistic interpretation – I’ve found that dogmatic approaches, or bending the Elliott Waves to fit your opinion is not the best method and can cause more problems than it’s worth (plus give Elliott Wave a bad name).

Remember, we’re looking for odds and probabilities, never certainties.

Let’s now drop down to the Weekly Chart for a closer inspection of the recent move down:

China’s Shanghai Index ($SSEC) Weekly:

We see a clear five-wave move down into the October 2008 lows, of which each intermediate wave subdivided as expected into fractals – Waves 1, 3, and 5 subdivide into their own 5-wave affairs.

The final 5th wave terminated in a lengthy, positive momentum divergence which created a powerful buy signal that led to the recent ‘monster’ rally that almost doubled the index.

I’ve subdivided the move off the October lows into what made sense to me, which is to label the move as a 5-wave affair into EMA resistance (which, as mentioned above, also came into monthly EMA resistance).   It almost has the feel of a possible “Bear Flag” off the monthly chart, though “B” Waves often take a 3-wave form.  It would ‘count’ better if we started the “ABC” move (instead of i,ii,iii,iv,v) off the January lows and then we would have counted a zig-zag up… but I don’t want to get over-technical in a quick post.

That being said, let’s watch the 2,750 level very closely – a break above (which would also cut above confluence EMA resistance which would be huge) would tip the odds to the more bullish scenario, though I suspect we could find at least short-term if not intermediate resistance at this level.

For more educational information on the Elliott Wave Principle, see my 3 (more coming later) “Cheat Sheet” Posts:

1.  First Elliott Wave Cheat Sheet: Introduction

2.  Wave Labeling

3.  “Best Trades” to Take

For more formal/structured education, Join Club EWI (Elliott Wave International), the #1 source for ‘all things Elliott’ to download a free copy of “10 Free Lessons on the Elliott Wave Principle

Corey Rosenbloom, CMT

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

4 Comments

4 Responses to “Elliott Wave Analysis on the Shanghai Market Monthly & Weekly”

  1. DGee Says:

    Thanks for your view. I have read an article of you about Indian stock market few weeks back. That worked perfect and your prediction was right. would you please comment on the present and future likely movement of the indian stock market(Nifty).

  2. Rajandran R Says:

    Hi Corey,
    Some Intresting High Probability trading Patterns
    using Icimoku Cloud with input parameters 3,13,16 for various indices and stocks
    Could you have a review on this indicator.

  3. Beijing Hotels Says:

    Different point of view from that post. Interesting to say the least.

  4. Beijing Tour Says:

    Different point of view from that post. Interesting to say the least.