Weekly and Daily Look at the Shanghai Market Structure

Sep 1, 2009: 2:29 PM CST

A couple of readers have asked my take on the Shanghai ($SSEC) Stock Market in light of Monday’s “mini-crash” and down-move that preceded it.  Let’s take a quick look at the Weekly and Daily structure for more clues and lessons.

The weekly chart holds a few lessons in the past for us, from the peak of the move coming after a five-wave Elliott fractal move to the 2008 bottom coming in on a lengthy multi-swing positive momentum divergence.

Be sure and study the Elliott fractal and the divergence swings for educational insights.

For now, price roughly doubled in value from the 2008 deep price lows to the July price highs near 3,500.   Crude oil shows a similar pattern, only the collapse began in mid-2008 instead of late 2007, though both showed similar “rounded reversal” or “multi-swing positive momentum” divergences which resulted in large moves up.

For now, price has retraced 38.2% of the 2007 highs to the 2008 lows as price has turned sharply lower from this Fibonacci retracement level (which often serves as targets and entries on higher timeframes).

Let’s take a look at the daily chart to see a powerful trend coming to an end.

I love arc formations, and the Shanghai index gives us a great example of how price arcs higher only to extend its “angle of extent” to an unsustainable level as a collapse (can we call it that?) formed.

The past price action gives us a testament to the power of the 20 period EMA in a strong uptrend, as it holds price for support and ‘scalp’ or swing entries all the way up.

The breaking of the 20 EMA was an early warning sign, and price tried with a bullish hammer candle to support on the rising 50 EMA though sellers plowed through this “line in the sand” support area in early August which has taken us to our current swing low.

Price formed a tight retracement up which resembles a “bear flag” pattern which appears to be on its way down to test the 2,500 level at a minimum, if not a full ‘measured move’ of the possible bear flag which would take price down to the 2,300 level for a full projection.

Notice also how a slight negative momentum divergence preceded the reversal at the August price highs.

There are other lessons to be learned from the Shanghai charts as shown above.  Let’s keep watching to see if price continues its slide lower, which would likely correlate with a lower S&P 500 and broader commodity prices.

Corey Rosenbloom, CMT
Afraid to Trade.com

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9 Responses to “Weekly and Daily Look at the Shanghai Market Structure”

  1. Dan de Man Says:

    More beatings to come tonight for sure. 1 little positive day is only to shake out the week shorts.

  2. JayD Says:

    Does anyone know if this $SSEC (Shanghai Stock Exchange Composite Index) has a future which can be traded? How much is it per tick? I'm not too worried about where to trade it, as I'm with IB and I can trade the Australian index or Japan index, all currency pairs, etc., without any problems.

    Thanks in advance.

  3. Dan de Man Says:

    how about FXP ProShares UltraShort FTSE/Xinhua China 25

  4. Ziggyzag Says:

    I can't see where W1 begins, but it looks like W3 is the shortest of the three impulse waves. I am not an Elliott expert (by any means), but I thought this was an inviolable rule.

  5. Corey Rosenbloom, CMT Says:

    We'll see! Bloody action in the index for sure.

  6. Corey Rosenbloom, CMT Says:

    Personally, I'm not aware. I just did a search in TradeStation platform and didn't find one listed but I might be missing it.

    Readers, feel free to chime in here.

  7. Corey Rosenbloom, CMT Says:

    Hey Ziggyzag (nice name btw!)

    I'm far more interested in fractals than long-term counts. What I've labeled above could be a fractal say of a 5th wave or 3rd wave. I would say the fractal 1 began at 1,500 and ended at 3,000 then the fractal 3 began at 2,500 and ended near 4,300. W1 is thus 1,500 and W3 is thus 1,800.

    The absolute low (of the move) was in 2005 and it looks like a nice fractal on the monthly frame.

    The monthly chart is interesting to view.

    You're right though – W3 can't be the shortest.

  8. Ziggyzag Says:

    Thank you for the reply. /Z

  9. Ziggyzag Says:

    Thank you for the reply. /Z