China Equity Market Strength Continues

The strength of the China market continues. Starting from September 29 the American DOW index lost 23%. During the same time the Shanghai Composite Index lost 16%. This difference is very important. It shows much greater strength in the China market and this strength is continuing. The market retreat is different from the market fall in America. The American market is falling very rapidly and moving quickly below historical support levels. The America market shows no evidence of developing any trend reversal behaviour.

The China market has already developed patterns of behaviour which are often related to a change in the direction of the trend. The first behaviour feature is the support band between 1750 and 2000. The second behaviour feature is the long term fan pattern development. The third important behaviour feature is the resistance band between 2600 and 3000.

When a bear market falls it tests the support levels at the lower edge of trading bands. There is a very strong support level at 1750. This is the lower edge of the trading band. This acted as a resistance level in 2004 and again in 2006. The upper level of this support band is near 2000.
This support level may develop into a consolidation level in preparation for a trend rebound.

This consolidation band has been tested for the first time in September. It will be tested for a second time in the next several days. The first test was successful and the index had a rally above the value of fan trend line 3. The America market has not experienced a successful test of a support consolidation level.

Consolidation is also related to the long term fan pattern. This pattern is best analysed using a weekly chart. The fan pattern shows the speed of the market fall is slowing. Fan trend line three also acts as a support level. The market moves to this level and then rebounds. The sloping fan trend line intersects the horizontal support lines. During the next one to three weeks the market will also find support from the horizontal support area between 1750 and 2000. This has the potential to develop into a rally rebound point.



A rally rebound from this level encounters resistance near fan trend line four. We use the value of the upper edge of the long term Guppy Multiple Moving Average to place the estimated position on fan trend line four. There is a high probability of several weeks of rally and retreat behaviour before there is a successful move above fan trend line four.

The best result in the next several weeks is to see good consolidation and support develop near the 1750 to 2000 level. This will develop a good foundation for a new trend break above the value of fan trend line four.

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Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.