Last week's post called for max upside of 1110 which is the 62% retrace level, then consolidation. Since then prices have reached and breached it, but only by a bit. Although, there is always the possibility that we may head higher to the 1126 level next, i'm expecting a drop here - probably even a sharp one!
Here's why:
1) Overbought at hourly and daily levels, and sitting right on the trendline
2) Negative divergences abound
3) Shanghai Connection
Shanghai Connection Update
If you're not already familiar, read this for a re-cap. Note highlighted area in the updated Shanghai & SPX charts respectively:
Although the form of the decline (looking like a 3-waver), and the subsequent rise are similar, SPX has already retraced 62%, as compared to SSEC's retrace of 50% only at that time. So, it's not an exact relationship. However, i propose that the psychology behind the moves is very similar. And so coupled with the other two factors mentioned above, we can expect a decline within the next few sessions, if not immediately.
Support Levels
Minor support around 1096. Depending on the slope of the decline, main support is the rising channel line from Feb 5 - could be around 1085. Next supports at 1060 and 1045.
In the very short-term, there could be a pop-up at the open based on Fri closing action.
As always, watch that steep rising trendline for a break before taking action & place stops to protect against any upside surprises. Good luck folks!
Posts
3 comments:
Trendlines - given that you believe the Shanghai index has been in a corrective wave since December, I am not quite sure I see where it is going to over the next six months or so. Can't quite make out whether it will continue up beyond the 3250 mark (or thereabouts) that it achieved last May, or whether that date marked the start of a new downtrend, and we have been in a sloppy, slightly upwards corrective wave ever since. Very puzzling however. The market has gone more or less sideways for four or five months now which given the so called 10% growth just doesn't make sense.
Sorry - crazy date labelling you yanks have!!! Of course I meant "beyond the 3250 mark (or thereabouts) that it achieved last August." Apologies.
Hi Chabazite, thanks for dropping by. I agree, Shanghai has been a puzzle - and in my little experience so far, corrections are most puzzling! Everyone's bearish on Shanghai, and Chinese govt is stepping up tightening measures, all contrarian indicators that there might be upside left.
But, as always let the trendlines do the analysis for us.
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