SSEC: Getting Shanghaied

The Shanghai Composite made its Bear Market low on October 28, 2008, three and a half weeks before the NAZ 100 made its Bear Market low, and four and a half months before the SPX bottomed over here in The Colonies. The SSEC rallied a sizzling 109% before it finally put in a top on August 4, which is quite a move for an entire index. We don't want to make any assumptions, but if the August 28 high of 1039.47 is a top in the SPX, and if the August 28 high of 1668.01 is a top in the NAZ 100, that would be three and a half weeks after the top in the SSEC.

A few observations about this chart:

1. The first move above the Kumo (Cloud) in early December, 2008 got "called back." That's often the case. Charts are much stronger if they pull back, and form a better base from which to launch a sustainable rally.

2. Notice how the Kumo (Cloud) flattened out in December, 2008 and January, 2009 while the SSEC was forming the Right Shoulder of a Bullish Inverse H&S pattern.

3. When the Inverse H&S pattern broke out on January 19, 2009, the close also was above the Kumo (Cloud). The index rallied smartly into mid-February, at Black #1.

4. When the SPX bottomed in early March, 2009, the SSEC was pulling back to find Black Data Point #4, to establish a Symmetrical Triangle. At market bottoms, we tend to want stocks and indices that are "cheap," and making new lows. Those aren't the easiest ones to play because they often will need time to form a base if they're putting in new lows.

When the SSEC broke out of the Symmetrical Triangle on St. Paddy's Day, the base-building work was done, and it was good to go. We can "See At A Glance ... The Table of Balance" from this Ichimoku Kinko Hyo chart that it was nothing but blue skies and clear sailing into the August 4 high for a rally of 60%, just from the Symmetrical Triangle breakout. The 8-day Tenkan Sen remained above the 21-day Kijun-sen throughout the entire rally.

Tops and bottoms are very difficult to predict, and anyone who tried during the first half of 2009 had a very bad time of it because the first sign of any problem didn't come until July 29, when that big black candle got put in. That sure "looked like" a top might be in.

Tops often have traps, or "hooks," convincing us that the stock or index is going down, then convincing us that its going higher. Arrrrgh! In this case, the big black candle was a Bear Trap. The SSEC immediately turned higher, and took out the high of the black candle, stopping out some Bears, and inviting Bulls to enter. The new high was a Bull Trap!

The first clear evidence that a top was in, was when the neckline of the H&S Top got broken. That still "could have been" a Bear Trap, and if it "had been," cover shorts on a CLOSE back above the neckline. That never happened. The SSEC only managed a one-day rally off the top of the Kumo (Cloud), which acted as temporary support, but then the SSEC tanked, and the H&S Top target of 2917.39 got MADE.

Notice how after the SSEC closed below the Kumo (Cloud), it became resistance. The Ascending Triangle formed below it, indicating that a "sea change" likely had taken place. Initial confirmation of that was when the index CLOSED below the pattern, on August 28. That was a pretty good indication that at least one of the downside pattern targets would be achieved, which it was on August 31 when the 2761.62 target got MADE. 2626.82 still is IN PLAY. Yesterday's low was 2663.


We've witnessed a lot of H&S Tops and Bottoms in these charts. That certainly doesn't mean that we'll get one here in the SPX, but we don't want to rule that out, either. The possible neckline is the SPX 978 area.

We've had a MAJOR Bear Trap, at the successful retest of the May 1 Bullish Inverse H&S neckline (pattern in purple), on July 8-10, followed by the upside takeout of the putative H&S Top (pattern in black). We've also had a MINOR Bear Trap, the upside takeout of the little Descending Triangle (pattern in blue), and a MINI Bear Trap, the August 28 1039.47 nominal ("in name only") takeout of the 1037.75 August 25 high.

That "could be" a Bull Trap. We'll see. We never want to see anyone get shanghaied, but it only seems fair that a few Bulls get tricked after those deceptive Bear Traps ;)