shanghai stock index 27 March 2012

Shanghai Stock Index Update

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.

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