China Clean-Out Positive

Technicals | Jul 11 2018

Bottom Line 10/07/18

Daily Trend: Up
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 2638 / 2320 / 1850 
Resistance Levels: 3037 / 3220 / 3336 / 3587

Technical Discussion

'Overall we remain longer term bullish the Asian region in general, yet China in our view is going to continue to be the drag. What this means is that lower may still need to be witnessed medium term, before some form of significant low is finally able to lock into place.' And since our last review lower is exactly what we were granted, with a solid clean out having now taken place which in our view is a very big positive from a bigger picture perspective. As simply put, this market has been going nowhere for quite a long period of time. And when this occurs with any market, sometimes a solid clean out is all that is needed to reset it from lower levels and start the process of attempting to push higher all over again. Off the bearish run south since our last review, Monday saw a surge in Chinese stocks occur right on cue, and even though today the Shanghai Composite Index traded flat to lower for most of the session, the last couple of hours of trade saw buyers come in quite strongly to close the Index at 2828 which was up 0.44%. Some form of low point could now well be in place, yet three sessions doesn't change a trend so we need to remain wary

Reasons to stay neutral to bearish: 
→ interest rate cuts potentially to have impact looking well ahead
→ the drop off the June 2015 highs was extremely strong
→ price action still trying to recover bigger picture post being technically damaged
→ Clean out low potentially now locked in

'…this market is going to need more time, and for now looks locked within a wide range between 2638 and 3685 …'  Well the lower boundaries of the range since our last review have now come under fire. The clean out though is exactly what the doctor ordered, with the strong A-B-C equality move off the January 2018 highs potentially now completed. The support line circa 2638 has come in right on cue to bring out some buyers which is a positive shorter term. Pre this strong move south, all we had witnessed was a very slow upward grind over a 2 year period from 2016 – 2018, yet now this move has all but been retraced in only a 6 month period. So up via the elevator and down via the lift. What we need to see from here now that the stale old bulls have been wiped out, is for the smart money to start a recovery process. Bigger picture the chart is a mess so overall it is still way to early to be calling for a major low to be locked in here. That said the buyer response over the past few sessions has been promising off the strong support zone !  

Trading Strategy

We don't trade the Shanghai Composite Index yet it certainly has influence on our own markets here in Oz, with China being such an important trading partner. It doesn't mean our markets are directly correlated, yet it has been no coincidence over the past years that both the ASX200 and Shanghai Composite have been failing to find consistent upside traction in unison. Yet now that we have had a decent clean out as mentioned, perhaps long overdue change is in the air. Too early to know for sure although some solid upside follow through from here will be promising for the bigger picture outlook.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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