Thursday, July 8, 2010

Double-Dip Risk in Shanghai Index & DOW

Summary of key points from a recent update from Daryl Guppy (The Edge Singapore) on Shanghai Composite Index and DOW:
  1. The Shanghai market gives us an idea of the shape and behaviour of the much-anticipated double dip.

  2. The fall below 2,500 is a key indication that a large-scale double dip is developing. Break of support near 2,481 suggests it will probe the October 2008 lows, making this a major double-dip environment.

  3. This suggests the market may develop a consolidation pattern of behaviour between 2,050 and 2,280. The most bullish result is when support develops near 2,280, with perhaps a temporary dip towards the pattern target level at 2,200. The most bearish result is a fall below 2,200 to develop strong support near 2,050.

  1. These pattern projections do not provide clues about the nature of the retracement. This could be a dramatic fall over two or three weeks, or it could develop as a slower retracement. In either situation the key factor is the development of support in the 2,200 area. Support at this level will lay the foundation for the development of a new uptrend. Investors will look for consolidation patterns and the development of bullish chart patterns before they can enter the market with confidence.

  2. This also suggests that the double dip in Western markets will probe the March 2009 lows. A confirmed head-and-shoulder reversal pattern in DOW gives downside target projection near 8,500. A fall to this level will shake market confidence and there is a high probability of a momentum overshoot below this support level. Then, in another cascade, a further collapse towards historical support levels to develop a major double- dip environment.

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