Jun 272012

A few days back I received an email from a reader in Taiwan that he had first heard of me from a Chinese website that had translated my Elliott Wave analysis of SSE. Would it be possible to do a similar Elliott Wave analysis of Taiwan’s TAIEX index? Of course! So I spent some time studying this chart, and here are my thoughts on the TWSE index.

It is relatively easy to spot a clear five-wave pattern from the low of 3955 (seen in Nov 2008) to the high of 9220 (Feb 2011). As you know, the five waves will contain three impulses in it, and each impulse wave would have its own five sub-waves. I have marked out the sub-waves of the third wave for you in the chart. You can also observe that several other Elliott Wave characteristics are present in the movements. For example, the third wave is the longest wave (being an extended wave). The all-powerful “3rd of the third” is also marked out for you.
Elliott Wave Analysis of TAIWAN stock index

You would remember from my book “Five Waves to Financial Freedom” the principle of alternation. This says that two successive corrections are likely to be different in terms of the time it takes to ufold, in terms of the distance they travel and also in terms of complexity. When the 2nd wave is complex, as is the case here, the fourth wave tends to be a simple correction. The waves all tend to be related to each other by some Fibonacci ratio. For example, the fifth wave travelled a distance of 50% of the measure from point 0 to point 3. You will also notice that the fifth minor wave inside the extended third wave was also 78.6% of the distance covered by waves i through iii.

That was all fine. So what about the future? After we got a decent move down to the 50% retracement level, the index started climbing. If that recovery was a third wave, we should not have got the down move from near 8200. The extent of that sell-off sort of signals to me that we still need to do some work on the downside before chance of any big rally. Unfortunately, the patterns that I see are clearly indicative of another complex correction, and I am always cautious when dealing with these monsters. They can rob us of money very quickly. So while I am looking for a chance to test 6100, I would urge traders and investors to be mindful of sudden twists and turns that would cause needless tensions. Better to be patient for that down move to at least 6100 before doing anything. I hope one of you will remind me when we reach there in the future (or if we go straight to the moon!!) because there are just too many events happening at the same time for me to keep track of. I wish you readers in Taiwan and China the very best of luck and welcome you to the magical world of Elliott Waves and WaveTimes.