Mar 282012

On 18 March I posted a rather lengthy discussion about HOW we should wait for a particular sweet spot which offers a low risk buy level.I used the Shanghai Stock Index as my example, and made the following points.
shanghai stock index 27 March 2012
“If we now get a move above the reflex point in five waves, then we can be more confident of buying (in stages) from a 50% correction because any subsequent rally will be a third wave in the progression.This is ‘how’ we should really be using Elliott Waves. To plan ahead, and be aware of when the odds shift in our favor. The right plan and an ample supply of patience to wait for those sweet spots will reward you handsomely”.

The Key point above was a requirement to move past the reflex point to confirm the recovery was indeed an impulse wave worth risking money. Once the reflex point was crossed, we will still wait patiently for a 50% correction before buying. This was the plan. In the meanwhile, we came with up tentative labels that will alert us should something go wrong. So I proposed calling the first move up as wave 1, and said that we should not come below that level.

Guess what! The index has closed below the top of wave 1, effectively sending all the bulls to McDonald’s to become a value meal. Because we are using Elliott Waves the way it should be, we managed to neatly sidestep the whole chop, ie we avoided the bull trap. Even if you have only been a spectator, the lesson is very valuable. The scenario we just witnessed in Shanghai could happen in any other instrument and in any other market! From that point of view, what you have seen here is a lesson in real time. Enjoy!

Oh, do I hear someone asking what is the outlook from here. Well, once again, there is no question of playing from the long side until we know a bottom is in place. We could get a mild recovery from the 2230 levels, but then again, as a WaveTimes reader you don’t want to be playing that move because we need to see a 5 wave decline finish first before even considering whether we should buy at all. Alternately, we should see a massive rally higher that will take out wave (1) around 2380 directly, and I doubt this second scenario will happen immediately.Lets see.

Mar 182012

In order to be successful in our investment activity, we should spend the required time to analyze the stock/index/commodity etc that we want to invest in. Once you identify what you are interested in, the next thing to do is to figure out what is a good price to get involved. Elliott Wave analysis will help you here to some extent. Take the Shanghai Stock Index for example. If you had spotted that a five wave rally had finished at 6124, will you be willing to buy the next dip? Probably not. You will have side stepped the entire sell off to 1664. After that, when the markets started to recover, you might have been tempted to trade the minor waves because your stops would have been affordable. Once again, when a five wave rally finished at 3478 in August 2009, you would have no longer been interested in buying until a correction was posted. But now things get more interesting. Are we in the threshold of a huge third wave? Perhaps yes, but who knows! THe best we can do is to wait for that sweet spot where buying makes sense. Now take a look at the first chart and read on.

In my book “Five Waves to Financial Freedom” I have explained that if wave 2 is a zigzag, the maximum distance it can travel is usually limited to the top of wave 1 of the lower degree. Clearly the ABC correction from 6124 finished well ahead of the top of wave 1. The new rally from the point C can (for now) be considered the start of the next leg of the cycle. This is why I have labeled that wave up to 3478 as wave 1 (Green color). The ensuing correction is a double zigzag, and till now it has stayed above the top of wave 1 of lower degree (see red horizontal line). If we now get a move above the reflex point in five waves, then we can be more conifdent of buying (in stages) from a 50% correction because any subsequent rally will be a third wave in the progression.This is ‘how’ we should really be using Elliott Waves. To plan ahead, and be aware of when the odds shift in our favor. The right plan and an ample supply of patience to wait for those sweet spots will reward you handsomely.

The next chart zooms a bit closer to look at the hourly charts. Once again, we attempt to label the waves. Remember that what I have shown are all tentative labels. There are so many ways one could label these waves that trying out every possible combination is a worthless endeavor. We should look at the chart and decide on one count that we like best. Then we should stick with it until proved wrong. This is the key. REMEMBER THAT NO ONE (repeat NO ONE) CAN EVER BE SURE ABOUT A WAVE COUNT UNTIL THE MOVE IS OVER. So what is the point of having labels? It is to help us have a plan to trade. If we are proved wrong, we get out! Simple as that.

Shanghai Stock Index

Shanghai Stock Index

(Thus, when I showed in my Forbes article that S&P500 could be approaching a significant top between 1435/1475, that is a work-in-progress. If anyone tells you that they KNOW already that some other count is what is correct, he/she is not sharing the real truth. We can only make judgement calls, and we will always have to bear in mind that the market is the master, and it will do whatever it wants irrespective of what fancy counts Ramki or anyone else can publish in a humble blog such as WaveTimes. By the way, just because I published it in Forbes does not make me any cleverer) Having understood the spirit of what I am trying to convey, take a look at the second chart and see if you can relate it to what you have read elsewhere in this blog, and maybe in my book “Five Waves to Financial Freedom”. Best wishes. Ramki
Jan 052012

SSE Composite IndexSSE Composite IndexIn my Elliott Wave analysis of the Shanghai SE Composite Index posted on 18 July 2011, I had warned investors of the likelihood of testing the 2100 levels. The chart posted on that day had a wave count that is different from what you see today. But if you have been a regular reader of this blog, you know that my approach to the market is one where what matters is the result, and not the labels. We should trade our theory and so long as the rules and guidelines given by Ralph Elliott are not violated, we shouldn’t worry too much.

Now that we have almost reached the said target, it is natural that investors would wonder if it was time to start buying. (And those who have been short to start thinking about taking profits!) Given the fairly aggressive selling we have seen from November of last year, I think the SSE Composite index will go down to at least the 2010 levels. Down there is a place to start taking profits on short positions. But a really attractive buy level would show up lower still, around 1800. If the index reaches that low, we would have seen an extended fifth wave, and such a formation makes my mouth water, because any reversal after completing an extended fifth wave will offer handsome rewards. Take a look at the attached charts and let me know what you think.

Oct 302011

It is three months since I presented some Elliott Wave Analysis of the Shanghai SE Composite Index.. There are several requests for an update and so here are the relevant charts with Elliott Wave comments.

You should compare the first chart with my last update of July 18th. The wave counts are completely different, but we got the direction correct. What was the deciding factor for my bearishnes at that time? It was the personality of the move from the red colored C. Remember that you DON’T have to be worried about your wave count to make money. The count is never a fixed thing. Just follow the rules and guidelines governing the theory (and if you wish, the many tips in my book, Five Waves to Financial Freedom, and you should be able to trade with confidence

Jul 182011

Elliott Wave Analysis of Shanghai SE Composite Index reveals a five wave rally that completed at 3478. That level was just about 38.2% retracement of the whole big move down from 6120 to 1655. If you examine the internal waves of the rally to 3478, you will see that the 5th wave was longer than all the other impulse waves. Typically, when we get an extended 5th wave, the correction that follows will quickly take us down to the 2nd wave of the extension itself. This phenomenon has been illustrated in dozens of charts in and across different asset classes.

The interesting thing about the Shanghai SE Composite Index is this. If the correction to 2320 (from 3478) was the end of wave 2, we should have had an explosive third wave rally. But what we are seeing is a sideways movement that will eventually resolve to the downside, and potentially take the index to around 2100. Now you need to be aware that we might not go down there directly, because the hourly charts shows a pattern that requires one more recovery after a slight dip down. But in the absence of a sharp rally, the odds will increase for a move lower, and you will be better off for having read these technical comments on wavetimes. Good luck.

May 312010

When I saw a report in Bloomberg Businessweek that Elliott Wave International Inc was suggesting that the ‘correction’ in Chinese stocks may be nearing its end, I decided to look up that chart myself. We all know that wave analysis is not an exact science, and there are many different ways to approach the subject. My reading of the chart of Shanghai Composite Index suggests that there is at least another 10% room left on the downside for China. The reasoning is quite simple, and I’m sure that Mr. Prechter will not entirely disagree.  In a 3-wave correction, the third wave, or what is normally labelled as the “c” wave will be made up of 5 internal waves. When it comes to labelling the internal waves, analysts often tend to come up with different counts. You can see how I have labelled the internal waves of the “c’ wave in the chart produced here. I believe that after a minor move higher to around 2750, the index will commence a move down that will take it to around 2360, which marks a 61.8% correction of the prior large rally. Even after we reach this level, don’t expect the index to commence a huge rally immediately. We will likely range trade between 2825 and 2360 for some more time while we complete the 4th and 5th waves of the “c” wave. Thus, calling the end of the correction right now looks to be a bit premature to me. Ramki