The following chart shows the current correction wave count
There was a wave 1-2-3-4-5 structure for the wave ((Y)) after the rebound today. As such, the possibility that wave ((Y)) has completed, that is current correction based on wave count has ended yesterday. Another interesting fact about the wave ((Y)) is the length ratio of wave 1 : wave 3 : wave 5 turns out to be 1 : 1.618x (about there) : 1, a very textbook case for the 5 waves structure. Though through the wave counts STI has almost run out of combination for this correction, there is still another possibility that is wave ((Y)) can form wave A-B-C structure with yesterday drop as A, today rebound forming the B and a final drop to form the C. The last drop could send STI down to the lower channel line around 3,320 level which also happens to be 423.6% Fibonacci level. Either case as far as it is concerned, current STI correction can be considered case close. The wave count and tracking of this correction is challenging and provided a good learning experience but the main focus should be on what's next after this correction. Though STI needs to breakout from the upper channel to confirm correction is over, there is an estimate method ie the 3-2 method. Over a period of 5 trading days, STI must at minimum display 3 days of up and 2 days of down (this has happened in January when it ran up to the peak at 3,611). With that sequence, in a week or 2, STI should be able to breakout from the upper channel to confirm correction is over.
The following is HSI chart from 2007 till now.
Nope, I'm not going to provide analysis on HSI but there are some points that I would like to highlight as those will be used later to explain which scenario STI will be going forward.
1. Current HSI level already exceeded 2007 peak
2. The Elliott Wave count shows that the latest peak is Primary Wave 3
3. Primary Wave 2 corrected about 50% to 61.8% of Primary Wave 1, a very typical Elliott Wave guideline
4. Current correction is Primary Wave 4 and it does not overlap into Primary Wave 1 (even if considers 2015 peak as Primary Wave 1)
5. The steep climb of Primary Wave 3, a characteristic of Wave 3
1. Intermediate Wave 1 Completed, Intermediate Wave 2 Ongoing
This is the scenario I first ruled out and then brought it back in STI Analysis -- the next peak and trough ? (IX). I have to once again rule out this scenario on the following basis.
1. The initial breakdown failed to break the trendline, a very unusual breakdown
2. Current correction is very shallow for a Wave 2
3. The period for Intermediate Wave 1 to complete looks very much over-stretched
4. Though STI always lag behind HSI, HSI already in Primary Wave 4 and no matter how lag STI is, to be still in early stage of Primary Wave 3 (Intermediate Wave 2) has became unreasonable and illogical
2. Intermediate Wave 3 Ongoing with 3rd Wave Extension of 3rd Wave
This is the scenario first mentioned in STI Analysis -- the next peak and trough ? (IX).
So far there is no violation to invalidate this scenario plus from statistical point of view, this scenario allows STI to surpass 2007 peak while still in Primary Wave 3 and a Primary Wave 4 correction will not overlap into Primary Wave 1. However, there is a little doubt that is the lag behind HSI, still quite a "big lag". Despite that, this still will be considered as one highly possibilities going forward.
3. Intermediate Wave 4 Ongoing
This is the scenario added in this analysis.
The peak of 3,611 in January is end of Intermediate Wave 3 and current correction is Intermediate Wave 4. After this correction, Intermediate Wave 5 will commence and that will be the last leg of Primary Wave 3. This scenario has advantage over scenario 2 is that the lag behind HSI seems more reasonable and logical. However, from statistical perspective, this scenario appears to be less convincing than scenario 2. In this scenario, Intermediate Wave 1 : Intermediate Wave 3 = 1 : 1.91x (about 2x). Should Intermediate Wave 5 going to be same length as Intermediate Wave 1 and using 3,383 (yesterday low and possible end point of this correction), Intermediate Wave 5 (also end point of Primary Wave 3) will end at around 3,820, still below the peak in 2007 which is about 3,876. If length of Intermediate Wave 5 is the same as that of Intermediate Wave 3 then the end point will be around 4,210 and that makes more sense. However, If Intermediate Wave 3 is considered extended then Intermediate Wave 5 cannot be the same length as there will be more than 1 extension occur among wave 1, 3 and 5, which is normally not allow in Elliott Wave. If Primary Wave 3 cannot exceed 2007 peak then it will be Primary Wave 5.
Both scenario 2 and 3 are possible going forward for STI. After this correction despite scenario 3 deems to be a weaker probability it is too early to rule that out.
There is one clear fact that whether it is scenario 2 or 3 going forward, STI has yet to surpass 2007 peak and without doing so the Elliott Wave cycle which started in 2009 cannot be completed. Therefore, too focus on present correction as to where the bottom is should not be the way as the upside for STI going forward is far more clearly defined.
