Stocks Poised for Quick, Sharp Drop
01/05/16 INSIIDE Track: “Global Indices
Hong Kong’s Hang Seng Index continues to move lower after peaking in late-October – exactly 6 months/180 degrees from its late-April peak. At the end of November, it gave a weekly 2 Close Reversal AND weekly 2–Step Reversal lower.
In late-Oct., it had produced a textbook sell signal – spiking up to its January ’15 lows around 23,300/HSI (support turned into resistance & intra-year downtrend resistance) while neutralizing its weekly downtrend multiple times – and then gave an outside-week/2 Close Reversal sell signal on Oct. 30th. That projected – and still projects – a drop back to the late-Sept. low (20,368/HSI).
The Hang Seng has a 1–2 year HHL downside objective at 18,258. That is a little above its yearly Raw SPS (~17,800) and more closely aligned with the 2015 HLS at 18,163 (an extreme downside target that maintains validity in the ensuing period/year). A drop to 18,343/HSI would complete a 2nd decline that is .618 xs the 1st decline’s magnitude…
China’s Shanghai Composite perpetuated a ~5-month high-high-(high) Cycle Progression (mid-Jan.–mid-Jun.—mid-Nov. ‘15 highs) in Nov. & retested that high in December – reinforcing the potential for a right shoulder of a head-and-shoulders topping formation… with ~3,000 as the approximate ‘neckline’ and critical, breakdown support.
The Shanghai Composite turned down at the same time domestic Index cycles turned down (Dec. 21–24th) and is poised to drop back to its 12-month low around 2,927. Based on the recent cycles and impending ones (see inset on page 7), this could spur a sharp drop in January…
10-21-15: “The activity in 3Q 2015 demonstrated the role that China, the Yuan & the Shanghai Composite can play – and are likely to play – in 2015/2016 Crash Cycles. In a matter of ~2 months, the Shanghai Composite shed 40% of its value – giving one of the most convincing validations to the Capitulation cycles in May–August 2015. Global Indices followed.
In doing so, it fulfilled the projections for a drop below 3100 – a critical downside target & 6–12 month support level… the cycles are what really intrigue me…
On a longer-term basis, the first half of 2016 is when a multi-year low could take hold. One of the larger cycles projecting this is an ~11-Year Cycle connecting the lows of 3Q 1994 & 2Q 2005. The next phase of that cycle occurs in 2016.
If you view that as a 43-Quarter Cycle – 11 years minus 1 quarter – it would project that low for 1Q 2016. (With the scarcity of data points, this cycle demands some ‘leeway’.)
That is corroborated by a 5-year pattern – a ~360-degree cycle – in which the Shanghai has set 3–6 month or 6–12 month lows in late-Jan/early-Feb. 2011, 2012, 2014 & 2015 with an intervening high in early-Feb. 2013. That results in a ~360-degree high (Feb. ’13)–low (Feb. ’14)–low (Feb. ’15)–low (Feb. ’16) Cycle Progression targeted for February 2016.
And that is reinforced by a simple division of its manic period – since the 1Q 2014 bottom…the Shanghai Composite experienced a ~16-month bubble – into June 2015. If it experiences a subsequent ~8-month crash (the crashes are often twice as fast as the bubbles) – and retraces 50% in time – it would bottom in 1Q 2016… ideally Feb. 2016…
Ultimately, this decline (since June 2015) could last into 1Q 2016 (Feb. 2016 is greatest synergy of cycles) and see that Index return to the base from which its bubble began – around 2,000.” [END EXCERPT FROM 10/21/15 ALERT]
1/04/16 – As is the case with all cycle & price analysis, the two projections should be treated independently before being combined (if warranted). The Shanghai Composite has multiple cycles bottoming in Feb. 2016 – when an important low is expected. It also has an ultimate downside price target – for its entire decline – at ~2,000. If the two coincide, great.
However, if the Shanghai Comp sells off into Feb. 2016 and does not reach ~2,000, there could still be lower lows in the future.”
Asian Stock markets reinforcing analysis for sharp drop into a 1–2 year bottom in Feb. 2016. The Hang Seng is giving the clearest signals and would fulfill MAJOR downside objectives if it tests 18,258–18,343/HSI in Feb. 2016 – losing over 35% of its 2015 peak value. A bottom in 1Q 2016 would reinforce expectations for continued volatility and two-sided action – in US Indices – throughout 2016.