Shanghai Composite - Testing important support

First take a look at my post from September 28 here: http://theelliottwavesufer.blogspot.com/2011/09/chinese-economy-in-trouble.html

The charts above show the monthly and weekly price-action of the Shanghai Composite.

On the upper chart we have now closed below the 20 year rising trend-line support four month in a row, all but confirming the change in the long term trend.

Looking at the weekly chart below we can see important support at 2,307 being challenged. If... No when this support breaks the next target will be the bottom of wave [A] at 1,668, but the longer term target for wave [C] is at 1,080.

USD/CNY is still in a clear downtrend, but we have multiple warnings, that we could soon see the downtrend-line at 645.80 tested. If resistance at 645.80 is broken we should be headed higher towards 689 (there is no Elliott wave count on this chart, but the 689 mark is the top of wave 4 of the decline from 869 in 1994), 689.00 also marks the 23.6% retracement target for the entire decline from 869.00 to 637.84.

Shanghai Composite - At important support

The Shanghai Composite closed at 2,437.68, which is important support if broken (which I believe it will be) we should see the next decline towards 2,319.73.

In the bigger picture we are now in wave [C] after the breakdown from the big [B]-wave triangle the longer term target for this [C] wave is in the 1,300 - 1,400 area.
The breakdown in the Shanhai Composite points towards a slowing Chinese economy, which should also drag all the commodity currencies lower. Especially AUD and NZD could be poised for big declines, but the Brazilian Real (BRL), CAD and ZAR will be hit too.

Shanghai Composite - Thrust out from the triangle

We now have a clear thrust out from the triangle, which ultimately calls for a decline towards the 1,279 - 1,280 area. On the way the next support is located near 2,320.
The break down from the triangle should spell trouble ahead for the Chinese economy in general, especially the housing market.

Australia has been benefiting the most from the growth in the Chinese economy, but will also suffer the most as the Chinese economy gets hammered.

Shanghai Composite - Triangle breakout

The Shanghai Composite index broke out of its triangle consolidation today. It did not clear the next support at 2,610, but I would expect it will shortly and when 2,610 is broken to the downside we should see the next big decline towards 2,320.

As long as support at 2,610 stays intact we can't exclude a rally back towards resistance in the 2,695 - 2,720 area, but I wouldn't bet on that outcome...

If we break below 2,610 it was the last nail in the coffin and things could turn very ugly very quickly. Especialy take care of the com-currencies, they would be in for quite a drop AUD and NZD should feel the heat the most.

EUR/USD; Gold and Crude Oil - Expect new rallies soon

EUR/USD - We are still working on wave E of the endning diagonal, which will make wave C of [B] and setting the stage for wave [C] down.


In the shorter term picture the most likely count is that we have seen wave a and is working on wave b, which should set the stage for a rally in wave c soon. As we are in the final parts of the bigger ending diagonal I have my doubts that we will see a rally all the to 156.93. I find it more likely that we will see one of the more rare running flats, where the final "C" leg doesn't reach it's normal target if it wave a regular flat or even an expanded flat.




The reaction from 1,628 doesn't look impulsive and the best fit is that minor wave (iv) has extended in time and is stetting the stage for one final rally in wave v higher towards my target near 1,636. Only a break below 1,600 would call for the top being in place.

Crude Oil - Not much to add here. I'm a bit dissapointed in the last couple of days price-action, but non the less I'm still expecting one final rally to end the ending diagonal and setting the stage for wave [C] lower.

Overall it seems as we are reaching an important point in time soon, where we should see major tops in the equity and commodity markets and we should see a stronger USD. Be aware that AUD, CAD and ZAR all have benefitted more than could be expected and should face quite a decline.

I'm particularly looking at two stock indices for clues. One is the Shanghai Composite - A clear break below 2,610 will be the clue here. The second index is the Swedish OMXS30 - A clear break below 1,045 will be the clue here. You might ask, why the Swedish OMXS30 is important or can provide any clues in regard to where S&P 500 is going? Please check the bottom chart.

A clear break below 2,610 in the Shanghai Composite could actived the major B-wave triangle, which has been building for the last couple of years. Abreak below 2,610 could be a warning that the China-bubble has finally been blown.

It seems that the OMXS30 tops and bottoms before the S&P 500 and cloud provide us with an early warning that a major top might be in place for the S&P 500.

Shanghai Composite - Triangle breakout

Please see my post below first

http://theelliottwavesufer.blogspot.com/2011/06/equity-markets-breaking-thin-line.html

The Shanghai Composite is breaking down from its B-wave triangle. The thrust out of the triangle tends to be swift and dynamic. On the chart above I have shown the triangle target and the possible termination point. The breakdown does not boader well for the equity markets for the coming months.

The only market that hasn't broken its trendline yet is the German Dax, but it should just be a matter of time before it will. See the chart below

Shanghai Composite - Wave 3 down?

I still regard the decline since early August 2009 as wave [C]. If this count is the right one, then we have just started wave (iii) of 3 of 3, which should be the most powerful of the declines in the [C] leg down.

A break below 2,687 will confirm the rally since June 2010 was corrective and should confirm a decline below the June 2010 bottom at 2,320 soon. Wave (iii) should ideally decline to 1,510.

Shanghai Composite - The correction is finished

For quite some time ago I marked the area, where I expected wave ii to end. We just hit that area yesterday. Having said that I must also say, that I had wave i ending at the 2,319.73 low, but looking at the internals again it's more likely that wave i isn't over yet, and we are only beginning wave (v) down from 2,701.93.

As we are currently tracing out wave 3 down I would expect it to become extended and reach the area between 1,995 - 2,001. In this area wave (v) will become equal in length to wave (iii) down.

Shanghai Composite - Top in place?

We missed my ideal target area with a few points. The priceaction since the 2,679.09 high could be the beginning of the next impulsiv decline, but we might just be looking at the end of a flat correction. There should be no doubt that the decline since 2,675.83 is impulsive, but it might wave C of a flat correction (3-3-5). We need a break below 2,550 to be sure that we are looking at a new impulsive wave down and a break below 2,499 will remove any possibility of counting the rally from 2,320.08 as impulsive.

Shanghai Composite - Close to the top?

We should be very close to a top. In the bigger picture this might only be wave A in a flat correction, but for now lets see how the decline unfolds.

If we zoom in on the C-wave rally, we can see a Ending diagonal is developing and we should be very close to a top any time now. A break below 2,549 confirms the top.

Shanghai Composite - We could be near a top

It has been some time since I have written anything about the Shanghai Composite. I have shown my favorite count, which calls for a possible end to wave ii soon or if we break clearly above 2,572 we could see a continuation higher to just around 2,700. Looking at the short term picture below we have a almost done 5 wave rally since 2,389. We might have one more spike early tomorrow, but we are very close to a top. The decline will determine if we need more pressure to the upside later or not.

Shanghai Composite - Breaks important support

The break below important support at 2,502 today add confidence in my impulsiv decline count. calling for a continuation lower towards the 2,000 area.

Longer term wave [C] should break below the bottom of wave [A] at 1,664.92 for a move towards 1,175 and possibly even closer to 1,000 area.

Shanghai Composite - At cross roads

The Shanghai Composite is currently at a very important cross road. If the decline from the August 2209 high at 3,478.01 was a A-B-C correction, then wave A and C has reached equalty at 2,525.50. If it was a A-B-C correction then support in the 2,481.97 - 2,525.50 should not be broken to the downside. If however support at 2,481.97 is broken, then the A-B-C correction count should be dismissed and a much more bearish count will be favored.

My favorit count is the much more bearish count, but be flexible.