The FSSTI’s rally had exceeded prior expectations. Still, the attached chart shows that the index is in a sideway range movement and it is premature to speak of the index forming a new uptrend or even bottoming out.
The index appears to be tracing out in a 5 wave sequence from March low of 1455. Wave 1 terminated at 1779, the rebound to yesterday’s high at 1859 is seen as wave 3. The current pullback is a wave 4 move which should not fall below the prior wave 1 peak of 1779. In fact, we believe that immediate downside should be limited to about 1800. Thereafter this should be followed by a final wave 5 move past 1879 towards 1920. There is a clear fibonacci link between wave 3 and wave 1 as wave 3 approximates 0.62x of wave 1 ( 0.62x ( 1779-1456) + 1658= 1858).
Hong Kong’s HSI also shows a similar wave pattern and fibonacci link.
Bottom line: There is scope for one more leg up if the index rebounds off 1800 and rises above 1830. Any rebound from these levels should be used as an opportunity to exit longs.
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