What was predicted for China has started to happen with the dramatic failure of its parabolic uptrend just over a week ago leading to a plunge. The update China Crash was posted when all indicators were at “nosebleed” levels late in April, right after which the third steepest fanline shown on our 1-year chart for the Shanghai Composite Index below was breached. Somewhat amazingly, that overbought peak late in April was not the final top – it rose even higher into early-mid June, but after that, just over a week ago, it finally broke below the parabola and started to cave in.
While low grade Chinese speculators who are leveraged to the hilt and up to their eyeballs in margin debt may have been unnerved by what has just transpired and are probably starting to break out in a sweat, it is considered unlikely that they appreciate the full gravity of the situation – many of them think that this is just a correction, albeit a larger fiercer one. So they are likely to buy this dip, some of them appreciative of the opportunity to get more stock at better prices. They have no idea what is really going on, but we do.
Recent action is shown in more detail on the 6-month chart below with expected pattern development shown in red…
Reprinted with permission from CliveMaund.com.