April 7 (Bloomberg) -- Asian stocks may gain at least 15 percent during a “multi-month” rally, based on chart formations that predicted this year’s rebound for Chinese shares, Elliott Wave International Inc. said.

The MSCI Asia-Pacific Index has broken above its upper trend line after completing the final leg in a “five-wave decline,” Elliott Wave International said in its April Asian- Pacific Financial Forecast report. The index may “retrace” at least 38 percent from its March lows to around 100, based on a so-called Fibonacci chart, and rise to as high as 122, it said.

“Such a breakout helped to identify the start of a bull market in China back in December,” Elliott Wave International said. “Prices in the rest of the region should now advance in a similar fashion.”

The MSCI Asian index has rallied 23 percent since tumbling to 70.60 on March 9, the lowest in 5 1/2 years, on speculation that governments worldwide will step up efforts to bolster global economic growth. The measure is still 52 percent lower than its November 2007 peak.

Elliott Wave Theory, created by U.S. market analyst Ralph Elliott in 1938, attempts to predict future price moves by dividing past trends into sections, or waves, and calculating changes in value.

Gainesville, Georgia-based Elliott Wave International was founded by Robert Prechter, who advised investors to short U.S. stocks in July 2007, three months before the bear market began. On Feb. 23, he said they should end that bet after the Standard & Poor’s 500 Index tumbled to a 12-year low.

Short selling is the sale of borrowed stock in the hope of profiting by buying the securities later at a lower price and returning them to the shareholder.

‘Tidal Wave’

His 1995 book, “At the Crest of the Tidal Wave: A Forecast for the Great Bear Market,” was published five years before the Internet bubble burst, driving a 49 percent retreat in the S&P 500 through October 2002. Still, investors who followed his advice missed out on the index more than doubling. Previously, he gained fame for cautioning investors that stocks would slump two weeks before the 1987 stock market crash.

The ratios used in Fibonacci analysis are based on the sequence identified by Italian mathematician Leonardo Fibonacci in the 13th century and used to predict support and resistance levels for prices.

China’s Shanghai Composite Index has led gains in Asia this year, rising 34 percent. The measure is currently on the fifth wave of an uptrend, Elliott Wave International suggested, pointing to the lower trading volumes in the March rebound compared with that of February.

‘Temporary Excess’

A plan by China’s securities regulator to end a moratorium introduced in September on initial share sales may be another sign of “temporary excess” in the nation’s Chinese market, Elliott Wave International said.

“The government is the ‘ultimate trend-follower,’ because it reacts to trends only after they are mostly over,” the researcher said. “If the regulators give their signal soon, it could be a short-term sell for Chinese stocks.”

The market researcher is more positive on the outlook for India, reiterating a call last month that the stock market has embarked on its second rally of a five-wave cycle even as U.S. shares are stuck in a “long-term bear market.”

Benchmark indexes tracking India, Pakistan, Sri Lanka and Indonesia have declined in only three waves from their all-time highs and remain above their highs of the 1990s and early 2000s, Elliott Wave said.

“We are bullish not only on India, but also on this Indian Ocean regional group,” the report said. “There’s always a phoenix somewhere.”

To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net

Last Updated: April 6, 2009 22:16 EDT