The downward trend seems relentless. The index recovered strongly from 2449 but could not test the significant resistance level near 2695. The rally hit the bottom edge of the GMPT indicator (long-term Guppy Multiple Moving Average) and then retreated. The rally was not a serious challenge for the dominance of the downtrend. The GMMA group of averages for the long term shows no indication of compression and this shows that investors remain dedicated sellers.
The reaction of the rally was not part of a V-shaped recovery. This type of recovery is a characteristic pattern of the Shanghai index. The probability of a strong V-shaped rebound trend recovery remains very low due to the strength of investor sales. A V-shaped rebound quickly leads to compression in the long-term GMMA as investors pile up in the rally and support the rebound. These essential functions were missing in the rally last week.
Traders wait for a consolidation pattern. Consolidation is when the index moves sideways without trending activity. The increase in the volatility of the index works against the potential to develop a consolidation pattern. The big fall of the American markets also contributes to the downward pressure on all international markets, so it is too early to look for the beginning of a consolidation pattern.
The weekly and monthly graphs give an indication of where the next support level is located. The first strong support level is almost 2400. This functioned as a support level in 2010 and acted as a resistance level in 2012 and 2013. Historically, there is no strong support level between 2690 and 2400, so the probability is very small that the index finds support above 2400.
Despite strong rallies, the secular trend remains low. Rally & # 39; s, as shown last week, are short-lived events with limited trading opportunities from the long side. Investors and traders will stay out of the market until the support is proven in the neighborhood of 2400.
As the index approaches 2400, traders watch for signs of slowing momentum and weak rebound rebounds. A decrease of this size means that it takes some time before there is a new upward trend.
Does the Shanghai index reflect the real economy? After spending several weeks in China, the answer must be: “No.
There are several reasons for this. The financial markets are not seen as a store of wealth for most Chinese people. It is a means to create wealth through capital gains. This willingness to enter and exit the market makes the financial market less a reflection of the economic situation.
According to some, the Chinese economy is on its knees and President Trump is making the trade war. If this is true, someone has forgotten to tell Chinese consumers. The level of expenses for discretionary items continues to rise. The number of travelers that took expensive holidays during the Golden Week holiday reached a record high. If you are not sure of the future, then one of the first things you cut back on is expensive foreign holidays.
The trade crisis in the US has hurt market sentiment, but there are good buying opportunities. Insurance companies, security companies and energy companies buy opportunities because they are not sensitive to international markets or trade.
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.
