Elliott Wave Analysis of Shanghai Composite Index (SSE) – 23 April 2012

The SSE hit a high of 6124 in Oct 2007 and plummeted all the way down to a low of 1665 in Oct 2008. That is a whopping 72% loss. The down move from Oct 2007 to Oct 2008 is clearly an impulsive wave which I’m labelling as Primary wave [A]. What followed next is Primary wave [B] in a horizontal triangle. This was then followed by a downwards move in the form of Primary wave [C] which is an expected continuation of the earlier downwards trend made by Primary wave [A].

SSE 5-Year Elliott Wave Analysis - 23 April 2012

There are a few targets for the Primary wave [C]. These are the Fibonacci extension and retracement levels based on Primary wave [A]. The targets are 2081 (23.6%),  1440 (38.2%), 932 (50%), 380 (61.8%). The more likely Fibonacci levels are the 38.2%, 50% and 61.8%.

The SSE so far has come down to 2140 before turning up. 2140 is very close to 23.6%. It could well be that Primary [C] ended here but it is not deep enough. Also, the recovery that came after hitting 2140 is choppy as depicted in the below chart. This type of choppy action is usually corrective in nature.

SSE Elliott Wave Analysis - 23 April 2012

The end of Primary wave [B] is shown in the top left hand corner of the chart. What followed Primary wave [B] is the beginning of Primary [C] and is labelled as Minor waves (in amber) 1-2-3-4-5 to complete Intermediate wave (1). This is a clear impulsive wave although the MACD does not perfectly fits in. This is because the lowest valley of MACD should coincide with Minor wave 3 but it is not the case in this chart. Nevertheless, five impulsive wave structure can be counted according to the rules of Elliott Wave Theory.

I believe that Intermediate wave (2) is in progress in a complex w-x-y pattern as it is choppy with a lot of overlaps. There are a few targets for Inter (2) based on the Fibonacci extension and retracement levels. These regions are 2400, 2500, 2600 and 2700. There is a gap that needs to be filled at 2614 -2651. That would fit nicely with a target of 2600 – 2700.

Note that the 200D MA is at the current levels and might provide resistance for any further upwards move. It is a good level for Minute wave [x] to take a break before Minute wave [y] embarks to higher levels.

The Alternate count is that Intermediate (2) ended at 2478 (labelled as (;2)) and we are seeing the early phase of Intermediate (3). For this count to remain valid the SSE should not go above 2478.

In summary, the SSE is likely to continue further upwards in a corrective manner with a target between 2500 to 2700.