Thursday, February 4, 2010

Shanghai Composite Long Term Uptrend Ended

Daryl Guppy wrote a long analysis on Shanghai Composite (China) on Feb 3 2010. Key points to note:

  • Global markets have a common emerging feature. The degree of correction is now large enough that it cannot be dismissed as a temporary trend weakness.

  • The Shanghai market continues to show leadership in terms of market behaviour. The behaviour is around 10 weeks ahead of the similar behaviour in US markets.

  • The degree of the move in the Shanghai market is in the order of three times the move in the US market. So a 15% fall in the Shanghai index is mirrored by a 5% fall in the DOW.

  • There is a genuine concern that the test of the 3000 support area is a prelude to a broader fall in the market. The first important change was the move below the long term uptrend line 1. This index movement confirmed that the long term uptrend has ended.

  • The uptrend line 1 will now act as a new resistance level for any index rally. This development shows the market has stopped up trending and it is now moving into a different behaviour pattern.

  • Good historical support level between 2910 and 3000 and near 2600 to 2650. A fall below 2910 has weak support near 2750. The strongest support is 2600 to 2650. The market can reach this level by two methods:

  1. The first method is a continued downtrend fast fall to this level. This is very bearish. This fall would give a strong test to the support level. A fast fall to support could easily fall below the support level because it has strong downwards momentum.

  2. The second method is shown with a down sloping trading channel. The upper edge of the channel is trend line A. The lower edge is trend line B. The market will soon prove if this trend channel analysis is correct if the market continues to use trend line B as a support level. In this market condition the market will continue to move more slowly towards the support level between 2600 to 2650. When the market reaches this level there is a higher probability the market will not fall below the support level.

  • The key features for the next few days is the behaviour of the index near the 2950 to 3000 support level, or if the index moves below this level and uses trend line B as the new support level. This will show if the market will move in a sideways trading band or if the market will move in a down sloping trading channel pattern.

  • The Shanghai market is quickly reflecting the concerns of Chinese investors. These concerns are also rippling through regional markets with tests of historical support levels. This is a time for protecting profits.

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