Transcendental Market Truths (Fragments):
Shanghai Composite (Daily):
The market finally broke out of its recent trading range and is rallying in what could be wave D of a large contracting triangle. I expect a rally in the next few days, a trading high (to around 3200) and a drop back into the trading range of the last few weeks. That would be a wave E and it could break the support lines (around 3000). Unfortunately, E-waves in triangles often do break their trendlines, making a "false break" pattern and getting a lot of traders caught in the wrong position when the thrust out the triangle comes. And, of course, sometimes the market turns before wave E completes, which is another way the market has to fool the trader.
Now, continuing with the assumption that my roadmap continues, I should get some kind of thrust out of the triangle. Ultimately, the market could actually make it to the 50% retracement level (3894.48) of the market crash. There's no assurance the thrust would carry that far, but it would certainly be the ultimate bear-killer rally that will present the best opportunity this century to sell the market short. A big rally in China would certain fuel a rush from the sidelines into US stocks because it would be interpreted as a sign that the world economy was healthy. Nothing could be further from the truth because the real estate bubbles are likely to be collapsing very soon, dragging the Chinese economy down with them.
Short term, the market is repeating the high of January, staying in a trading range, looking like a contracting triangle or an ending diagonal. The surprise could be a sudden collapse, probably triggered by disappointment that the Employment Report is more bearish than expected. I think I'll see a 5% correction, which is reasonable for where the market is right now with bottom-fishing likely to limit the downside. |
