Since 2007, when the Shanghai "A" Shares Index hit its all-time high of 6391.98, a triangle correction developed until March 2014. At that point, the index rocketed upward to its second-highest level of 5423.248 in June of this year. It then rapidly crashed, correcting almost 78.6% of that rally so far.
Last I checked, which was near the time of the recent peak in the Shanghai Composite Index, Elliott Wave International labeled the 2007 peak in Chinese stocks as wave III and the subsequent correction as wave IV of an impulse which began circa 1964 (based in part on estimates for the period prior to 1990). They labeled the recent rally as the wave (1) of the developing V.
Following that long-term count, and considering the actual wave development since 2007, I see something interesting, considering these two points:
Firstly, triangles typically yield a post-triangle thrust measurement which corresponds to the eventual extreme of the 3rd wave (or .786) of the thrust impulse. In the Shanghai "A" shares, the triangle, as labeled in my chart, yielded a thrust measurement which was quite consistent with the price action: it estimated a thrust height of 4569.128. The actual 3rd wave (by my count) reached 4791.534. Assuming that height as .786 of the total thrust would suggest a peak for the 5th wave of just slightly below where it actually peaked. The triangle parameters and thrust estimate derived therefrom and the actual thrust distance were mutually validating.
Secondly, a triangle always precedes the final wave of the same magnitude in any given wave structure, e.g. as a fourth wave prior to a fifth, as a B wave prior to a C, or as an E wave before a triangle thrust.
So, then, if this post-triangle thrust rally is the 5th wave (V), it appears to be done. The peculiar thing is that it did not exceed or even nearly match the height of the 2007 wave III.
I might kick myself for writing this if the Shanghai Index should suddenly launch up in a 3rd of 5th wave, and I suppose that in some cases the post-triangle thrust measurement might just reflect part of the wave, but I believe this is a strong enough case for the view that the 5th wave in Chinese stocks has possibly truncated (failed). It would seem to go hand in hand with the declines that are happening across stock markets globally.
Comments
timwest
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The implications of a 5th wave failure are quite severe....
AynCzubas
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You can say that again, Tim. You are clearly aware that it would mean a correction to a lot more than just the recent year's rally. The sociopolitical implications could be immense, especially as most of the investors in China are just faithful citizens who piled their life savings into stocks for no other reason other than their [powers that be] told them to "revere" the "world beating" Chinese stock market, that this was only the first leg upward, and assured them that the [powers that be] have the full will and resources to keep the rally going (as though they are in control of it). I actually live in China, so I am being a little cryptic, but you know what I mean.
AynCzubas
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"powers that be" told them to "revere", assured them...
IvanLabrie
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I had spotted that terminal some time ago, it has been an incredible selloff.
Now, as far as the count goes, I'm not sure it, being an amateur at EW...but, isn't the 4th triangle too big compared to the rest of the legs?
Is there any older data somewhere?
AynCzubas
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Ivan, well EWI reckoned that the bottom of the corresponding (hypothetical) wave II started around 1973-1974, so compared to the span of time for wave III, the IV was relatively short. I really don't know where older data could be found. I have just assumed EWI's count up to the wave III peak and am making my own analysis from that point to the present.
IvanLabrie
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Right. Me neither, makes sense then.
Post pattern confirmation is certainly there, at least for the terminal wedge. Now, truncation...not sure yet, but also possible.