Technicals | Aug 23 2017
Bottom Line 22/08/17
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 3100 / 3016 / 2931
Resistance Levels: 3306 / 3685 / 4006
Technical Discussion
Powerful drops like we saw off the June 2015 highs rarely reverse as part of V-shaped recoveries. Our view is that the Shanghai Composite Index will be no different and in fact could well take a number of more years before new highs are able to be ventured into. The recent move higher to this point is overall choppy and overlapping therefore in our view short to medium term it is either going to break lower pretty quickly from here and push below the January 2016 low at 2638 to lock in a significant low point, which could then set the scene for a major recovery to build from. Or we could simply see further longer term coiling within the larger range which we will talk more about in our technical section tonight. Either way price action still has a tonne of work to do, which means for now we need to be wary about the Bears remaining in control from a bigger picture perspective.
Reasons to remain neutral:
→ interest rate cuts potentially starting to have impact
→ the drop off the June 2015 highs extremely strong
→ price action trying to recover post being technically damaged
→ minor positive signs returning above 3306
The tightening yet wide range presently sits between 2500 and 4500 so further coiling is certainly possible between these two price points. As mentioned though, price action off the 2638 lows from early 2016 has been very choppy and this simply means that upside conviction is lacking. More immediately as well if price swings above 3306, even though this will see it at highs not seen since the beginning of 2016, some Type-A bearish divergence will likely come into play that will create some immediate head winds. If we want to look at some positives though, the move off the May 2017 lows, even though within a messy move north which is not what we like to see, you will notice on our video that most of the dips within his move have been strongly bought back up on, and this has kept price in an upward trajectory. So clearly a mixed bag with the Shanghai Composite Index at the moment. Lets see how it handles above 3306. The Index closed at 3290 today.
Trading Strategy
'… overall we continue to remain longer term bullish the Asian region be it we feel the Hang Seng and Nikkei across all time frames are sitting on a stronger footing …. ' This continues to remain the case with the Shanghai Composite showing far more relative weakness at the moment. That said, things can change at the drop of a hat, and if price keeps grinding higher from here whilst maintaining an element of support on the dips, then the aforementioned 2638 lows may in fact prove to be major. Strong Chinese markets generally have the ability to put some kick into our own markets here in Australia, so we aren't going to dismiss just yet that a recovery process could already be slowly simmering away here. Watching 3306 as a potential upside momentum driver – at least over the short to medium term.
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