Published February 8th, 2018 & validated August 8th, 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 August 8th, 2018

The Shanghai composite could be just one step away from a significant reversal. Another low could complete an entire minor wave in the SSEC. It spans all the way back to the beginning of 2018.

Could we see an extension with further downside here? Wave action could extend further. We would get an indication regarding this potential if momentum picks up to the downside. The arrow that we’ve drawn on our momentum indicators (very first chart below) show divergence in momentum with the price. The situation could certainly tip over as part of a strong sell-off. However, we rather expect a bounce here as prices seem to be diverging. We assign more weight to the status quo as opposed to what could happen.
Last but not least, the situation has gotten unusually political. Donald Trump has been twittering about his successful policies. He has specially mentioned financial markets in China and the US regarding that. More precisely, he mentioned that US markets are strong whereas Chinese markets a week, which show the success of his policies. The Chinese government is not naive. Moreover, they have been interfering with financial markets historically. It is quite likely that they won’t let the Shanghai composite fall like a stone at this point in time.
All in all, we expect to see a significant reversal on the Shanghai composite nearby.

Published June 20th, 2018 & amended July 31st, 2018 (chart 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).

All in all, Chinese equities are likely to descend further to the downside along the black path.

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