It’s been more than six years since the China Index ETF bottomed at 52.05 in October 2008. Now, in 2015, the index is looking far much better, trading around 140. Last week it even managed to climb to 151.50, which is a rally of almost 100 figures, compared to the 2008 lows. But is the rally here to stay? The Elliott Wave Principle suggests there are signs that the bulls might be running out of power soon. The chart below explains why.
The Wave Principle is a technical method of analysis. This means it relies on the information the market provides through the price charts. According to Elliotticians, the structure of the price action forms repetitive patterns, which make future swings predictable to a certain degree. The chart of the China ETF shows some easily recognizable patterns. As visible, there is a five-wave impulse, labeled with “A”. It begins from the 2008 bottom and ends at 133.00 in November 2010. The theory states, that every impulse is followed by a correction in the opposite direction. In this case, this correction is a wave B triangle. It is officially completed in March 2014, when the China ETF formed a bottom at 87.70. Triangles precede the last wave of the larger sequence. In our opinion, the last wave here is wave C to the upside, which is currently developing. Once it is finished, the larger A-B-C zig-zag pattern would be completed. Zig-zags are a type of correction. When the larger trend resumes, corrections are supposed to be fully retraced. This means that the end of wave C would mark the beginning of a new big decline, which should lead prices below the bottom of 2008. The question seems to be where the final top is most likely to form. Well, wave C does not look over yet. The wave structure suggests there is still some bullish power left. In addition, waves A and C tend towards equality. The price level, where they would reach it, is around 170. This is the area where the reversal is most likely to occur. If this is the correct count, future is not bright at all for the China ETF Index.
Recommended Content
Editors’ Picks
EUR/USD extends gains above 1.0700, focus on key US data
EUR/USD meets fresh demand and rises toward 1.0750 in the European session on Thursday. Renewed US Dollar weakness offsets the risk-off market environment, supporting the pair ahead of the key US GDP and PCE inflation data.
USD/JPY keeps pushing higher, eyes 156.00 ahead of US GDP data
USD/JPY keeps breaking into its highest chart territory since June of 1990 early Thursday, recapturing 155.50 for the first time in 34 years as the Japanese Yen remains vulnerable, despite looming intervention risks. The focus shifts to Thursday's US GDP report and the BoJ decision on Friday.
Gold closes below key $2,318 support, US GDP holds the key
Gold price is breathing a sigh of relief early Thursday after testing offers near $2,315 once again. Broad risk-aversion seems to be helping Gold find a floor, as traders refrain from placing any fresh directional bets on the bright metal ahead of the preliminary reading of the US first-quarter GDP due later on Thursday.
Injective price weakness persists despite over 5.9 million INJ tokens burned
Injective price is trading with a bearish bias, stuck in the lower section of the market range. The bearish outlook abounds despite the network's deflationary efforts to pump the price.
US Q1 GDP Preview: Economic growth set to remain firm in, albeit easing from Q4
The United States Gross Domestic Product (GDP) is seen expanding at an annualized rate of 2.5% in Q1. The current resilience of the US economy bolsters the case for a soft landing.