In my Elliott Wave analysis of the Shanghai SE Composite Index posted on 18 July 2011, I had warned investors of the likelihood of testing the 2100 levels. The chart posted on that day had a wave count that is different from what you see today. But if you have been a regular reader of this blog, you know that my approach to the market is one where what matters is the result, and not the labels. We should trade our theory and so long as the rules and guidelines given by Ralph Elliott are not violated, we shouldn’t worry too much.

Now that we have almost reached the said target, it is natural that investors would wonder if it was time to start buying. (And those who have been short to start thinking about taking profits!) Given the fairly aggressive selling we have seen from November of last year, I think the SSE Composite index will go down to at least the 2010 levels. Down there is a place to start taking profits on short positions. But a really attractive buy level would show up lower still, around 1800. If the index reaches that low, we would have seen an extended fifth wave, and such a formation makes my mouth water, because any reversal after completing an extended fifth wave will offer handsome rewards. Take a look at the attached charts and let me know what you think.