China’s Shanghai Composite stock market index reached 5178 on June 12th. Rising prices made everyone invest. Even those, who knew nothing about stocks, decided they should put their money in the market, afraid they would miss out on “the great bull market”. Then, the market collapsed. The index fell to 3500 in less than a month. Now, everyone believes the crash is not over yet. We agree on that. The Chinese government came up with several plans on how to stop the crash. In our opinion, all of them are going to fail. The Elliott Wave Principle explains why.
According to this wave analysis, everything since October 2007 could be counted as wave A down and wave B up. Each correction consists of minimum three waves. It follows that the recent sell-off is the beginning of the third one – wave C down. Its first target lies below the bottom of 2008. This means wave C could take the Shanghai Composite index to the 1000 mark. In other words, the index might lose another 2500 index points. Investors should prepare for a 2008-style stock market crash.
