Weekly And Daily Look At The Shanghai Stock Market Structure

A couple of readers have asked my take on the Shanghai ($SSEC) Stock Market in light of Monday’s “mini-crash” and down-move that preceded it.  Let’s take a quick look at the Weekly and Daily structure for more clues and lessons.

The weekly chart holds a few lessons in the past for us, from the peak of the move coming after a five-wave Elliott fractal move to the 2008 bottom coming in on a lengthy multi-swing positive momentum divergence.

Be sure and study the Elliott fractal and the divergence swings for educational insights.

For now, price roughly doubled in value from the 2008 deep price lows to the July price highs near 3,500.   Crude oil shows a similar pattern, only the collapse began in mid-2008 instead of late 2007, though both showed similar “rounded reversal” or “multi-swing positive momentum” divergences which resulted in large moves up.

For now, price has retraced 38.2% of the 2007 highs to the 2008 lows as price has turned sharply lower from this Fibonacci retracement level (which often serves as targets and entries on higher timeframes).

Let’s take a look at the daily chart to see a powerful trend coming to an end.

I love arc formations, and the Shanghai index gives us a great example of how price arcs higher only to extend its “angle of extent” to an unsustainable level as a collapse (can we call it that?) formed.

The past price action gives us a testament to the power of the 20 period EMA in a strong uptrend, as it holds price for support and ’scalp’ or swing entries all the way up.

The breaking of the 20 EMA was an early warning sign, and price tried with a bullish hammer candle to support on the rising 50 EMA though sellers plowed through this “line in the sand” support area in early August which has taken us to our current swing low.

Price formed a tight retracement up which resembles a “bear flag” pattern which appears to be on its way down to test the 2,500 level at a minimum, if not a full ‘measured move’ of the possible bear flag which would take price down to the 2,300 level for a full projection.

Notice also how a slight negative momentum divergence preceded the reversal at the August price highs.

There are other lessons to be learned from the Shanghai charts as shown above.  Let’s keep watching to see if price continues its slide lower, which would likely correlate with a lower S&P 500 and broader commodity prices.

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