Elliott Wave Analysis of the Shanghai Composite Index (SSE) by Sid from ElliottWavePredictions.com. Click on the chart twice to enlarge.

The Shanghai composite Index is showing a number of technical reasons why it may have bottomed last week. For one thing, Wave C black appears to have turned after reaching exact equality with wave A black, a very common relationship. Also, when using Elliott’s triangle measuring technique, the thrust from the blue wave 4 triangle appears to have bounced exactly off of the thrust target exactly to the tick. Additionally, last week’s candle spanned nearly a 6% gain from low to high, and is a clear weekly bullish engulfing candle. If the long term triangle scenario pictured above is correct, the Shanghai Composite is now due for a significant bull run, with a projected gain of over 40% from Wednesday’s low, the eventual upside target being the .618 retracement of the entirety of Wave C (burgundy) of the triangle.

This development could easily kindle profit-taking in US and European equities, as the smart money reinvests portions of their profits from mature bull markets into instruments with greater potential to rally from significantly oversold junctures.