Hang Seng – may be a decent short

Hangseng IndexHave a look at the Hang Seng Index. Even though I usually don’t do Elliott Wave Counting (and when I do, I still never use it for entry or exit signals), in this example it’ll help to understand the basic assumption of labeling this post with the title that it has been.

We are looking at the Hong Kong market and as mentioned before, the chart, the technical perspective of a market, is the EKG of itself providing us with all the information needed to trade in an effective manner. In this case we can make out wave 1, 2 and 3 easily (if you want to know more about wave counting the profitunity.com way, visit their website). If you would’ve followed the fractals in the direction of the flow of the market, you also would’ve been profitable trading this monthly chart to the upside, until wave 3 ends.

At this point it gets interesting, because we want to find new places for entering this market as chances increase a new major movement could occur – after some degree of correction balanced the market, of course. Until the indicated end of wave a in the chart, there is not much a trendfollower can do but watch the market unfold its nastiness to the downside. As the market reverses on a down-fractal and starts to level out in a zone where it remains to trade from July 2011 to July 2015, we are getting eager to find support and resistance areas marked by fractals to enter the market again. As price action continues, we are being hit on two fractal buy signals in early 2015. However, they fail, as so many fractal breakout signals do (reminder: risk management!). We were hit on those fractal buy breakouts with quite a convincing upwards move for two weeks, but immediately following the euphoria, price retraced significantly and has now created a fractal sell signal on this timeframe as well as the weekly chart (the monthly timeframe is not actually traded, but provides a decent indication of the current market trend.)

The fact that the Index was never able to exceed the high of the indicated wave 3 suggests that a correction has been developing in the form of a wave 4, that could still be looking for its final leg down to find an end (wave c). Only when a new low has been established below what has been marked wave a of 4 in the chart, can price reverse on a down-fractal and start a new major move to the upside, initiated by yet another buy fractal signal.

If this scenario should come to be the case, wave c of 4 would most likely unfold in a crashing manner, resulting in many world indices following the chinese example. New lows in the SPX index, in many european indices, too, and more negative outcomes for the global economy could be possible.

However, let’s remember – what do we know? Absolutely nothing. And we don’t need to. Following the market flow is all that’s necessary to catch a large part of market movement …

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