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Contracting Triangle: How This Bullish Forecast Worked Out

If you wait for sentiment to improve, you'll usually miss out on the early part of a price climb

by Bob Stokes
Updated: May 30, 2017

In 2016, the prevailing sentiment toward China's economy was negative. Yet, if investors had avoided China's internet sector, they would have missed a significant advance. The whole episode teaches a valuable lesson.

 

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[Editor's Note: The text version of the story is below.]

Let's say a financial market's Elliott wave price pattern suggests that a trend turn is nigh. Yet the prevailing sentiment supports a continuation of the current trend.

Does this apparent conflict present an investor with a difficult decision?

Based on our observations, not at all. Actually, the opposite is usually true. Extremely positive sentiment supports the start of a bearish price pattern, and extremely negative sentiment usually coincides with the start of a bullish price pattern.

For an example, let's go back to 2016 when sentiment toward China's economy was negative. Here are some sample headlines:

  • China's economic downturn is threatening one of the world's greatest success stories (Business Insider, Feb. 1, 2016)
  • China's financial system --The coming debt bust (The Economist, May 7, 2016)
  • China Economy Tilts Further in Wrong Direction (WSJ, July 15, 2016)
  • As China's Economy Slows, a Look at What Could Happen (The New York Times, Oct. 18, 2016)

Besides the economic pessimism, China's main stock indexes were in a downtrend since the first half of 2015.

Even so, our July 2016 Asian-Pacific Financial Forecast showed this chart and said:

Triangle Complete

The Kraneshares CSI China Internet ETF (US:KWEB) ... briefly fell to a new low within wave E [of a contracting triangle]. Within the triangle, wave D approximately equaled 0.618% of wave B and wave E approximately equaled 0.618% of wave C, both common relationships. We are bullish on the ETF ... .

That forecast has served our subscribers well.

Take a look at this May 30, 2017 chart of the Kraneshares CSI China Internet ETF:

KWEB

The price of the ETF has climbed almost 50% since our July 2016 forecast.

The lesson?

If you wait for sentiment to change, you'll miss out on the early part of significant price moves.

Now, the risk is much higher.

In addition to China, our Asian-Pacific Financial Forecast is now alerting subscribers to fresh opportunities in other sectors, investment categories and nations.

Get ahead of the trends in Asia with Asian-Pacific Financial Forecast

The Asian-Pacific Financial Forecast provides the world’s most forward-thinking big-picture perspective of Asian-Pacific markets. Editor Mark Galasiewski understands the vitality of Asian, Indian and Australian markets and gives you the analysis you need to keep your finger on the pulse of one of the most exciting regions on the globe.

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