Published February 8th, 2018 & validated July 3rd, 2018

We turn bearish for Chinese equities short term. The bigger picture is favoring a trading approach relative to a buy-and-hold strategy.

Chinese equities are in a secular cycle correction. A sideways trending market with violent swings describes the character of the trend. We forecast this situation to persist for the next years. Eventually, the corrective pattern will resolve to the upside.

Short-Term Shanghai Composite Elliott Wave Analysis

Published July 11th 2018 

The SSEC Elliott wave pattern shows a bounce during early April. It counts best as an impulse and suggests some followthrough to the upside. However, the paramount pattern looks incomplete. It lacks structure and there is no significant divergence into the last low.

All in all, Chinese equities are likely to descend further to the downside. The black path has significantly higher odds than the red scenario.

Published June 20th, 2018 & amended July 3rd 2018 (charts only)

Emerging economies are most likely the leaders during the topping process of risky assets worldwide. The most prominent markets, China and Brazil, are already close to -20% below their early 2018 peak. We expect the topping process to persist during 2018 and eventually follow into a multimonth correction. This time lagged behavior has been typical throughout history around major degree tops and bottoms.

Meanwhile, Chinese equities are accelerating to the downside. The sharp selloff at the beginning of 2018 was followed by another couple of impulses to the downside. Both are likely at a lower degree and part of minute wave iii(circle). Market action is probably building a motive wave to the downside. It may be either an impulse as depicted in black or a leading diagonal (red).

All in all, there is plenty of room to the downside for Chinese equities during the next couple of years.

Medium Term Shanghai Composite Elliott Wave Analysis

Published February 8th, 2018

It was difficult to earn money with Chinese stocks over the last decade. The Shanghai Composite index went into a sideways pattern after reaching its all-time high in 2008. The entire structure behaved violently. Its subwaves were typically sharp and strong. Our primary wave A°, as well as intermediate wave (W) labels, had the characteristics of market crashes.

The triangle is about 60%-70% percent from its end with respect to time. Moreover, the bottom is likely around the 2008 low. It will not be retested within the triangle unless the triangle morphs into a barrier triangle. Last but not least, primary wave C appears to trace out a complex structure. This fits very well into Elliott waves guidelines.

Our Shanghai Composite Elliott wave analysis concludes more sideways action for the years ahead. The triangle will eventually resolve to the upside. However, we project this to occur past 2020.

Technical Analysis