Shanghai Market Positive Signs

Shanghai stock market had a series of corrections and rallies for the past 2 weeks.   The index hit a low of 2661 in late January before rebounding to a high of 2994 on 22 Feb.  The index is now testing resistance at current levels.

There are a few positive signs in the current market behavior.  Firstly the index is able to rebound off its critical support at 2681 within one trading session even though it dropped below this support during the correction.  This shows that bearish selling pressure was not as strong as anticipated.  The second positive sign is a rebound off its Fibonacci retracement.  The rebound occurred exactly at the 38.2% retracement.  This usually means (although not 100%) that the index will go on to test its Fibonacci projection level which is at 3122. 

The critical thing now is for the index to go above 2994 level.  If the test of this resistance fails and the index falls below 2884, then all bets are off.

Shanghai Market

Shanghai market tested the uptrend line this week. The good news is the uptrend line is still intact with the support level holding on to attacks from the bears.

However there are a few warning signs appearing on its weekly chart.

Firstly, the MACD indicator has cut down from its signal line. The indicator has stayed above its signal line since end of Nov 08.

Secondly, the +DI is about to go below the -DI line. This indicates that the uptrend may be slowing down.

The critical level to watch is the uptrend line. The index needs to stay above the uptrend line. If it closes below uptrend line, a sell down may be in the cards.

Shanghai Update

Shanghai market was whacked again yesterday. The Shanghai Index closed at 2319 down more than 5%.

The index is now at the year 2001 level. The immediate support is at 2245 level which is the high set way back in Jun 2001.

For those that are still holding to their stocks since the index broke out of 2245 level, all the gains have more or less vanished.

We are back to square one again.

Elder Ray Indicator - Shanghai Index

The Shanghai Index dropped by 177.75 points to end at 4192.53. A slight divergence is emerging for the Elder Ray indicator as shown in the chart above.

The divergence that is developing now is not as great as the one we saw on Dec 2007. So my personal view is the index will not stage a strong recovery.