Originally published by guppytraders.com
The developed a very strong rebound rally from low in 2450. This rally is consistent with a double bottom pattern. The first part of the pattern is the low point of 2018 on October 19th. This is a pattern for the long term, with the low points being separated by 4 months. Double soil patterns are often associated with a longer-term trend break.
The success of a springback of the rally depends on four factors.
The first factor is the time period between the two points in the double bottom pattern. The strongest and most reliable trend reversal comes when the two lows are separated by several months instead of several days or weeks. The current double bottom has this function.
The second factor is the degree of separation in the long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. This group of averages provides guidance on how investors think. A large separation shows that the sales pressure is strong. Ideally, the GMMA should compress in the long term in response to the reaction of the rally. This has not yet been developed, but investors will keep a close eye on whether there is compression, as this confirms an increased chance of a trend change.
The third factor is the downward trend line. This, along with the upper edge of GMMA in the long term, is an important resistance function. The index must be able to go above and above, the value of the trend line.
The fourth factor is the strong historical resistance level near 2690. This was an important resistance and support level. Any movement above the value of the downward trend line is treated as a collection until the index is able to exceed the value of the resistance near 2690.
Traders will actively trade the outbreak above the trend line and use the resistance level as the starting point. They say goodbye to short-term profits because the index is likely to consolidate around 2690 before a long-term breakout is developed.
Aggressive investors enter the market when the outbreak is confirmed above the trend line. Conservative investors wait until the index is higher than above 2690.
A persistent withdrawal away from the value of the trend line is bearish and leads to a recount of support in the neighborhood of 2450. The current rally rebound is treated as a temporary rally until it is able to exceed the value of the downward trend line.
Daryl Guppy is a leading expert in the field of international financial technical analysis and special consultant for Axicorp. Guppy regularly appears on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These comments are for educational purposes only and provide an example of applied technical analysis.
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