Shanghai Stock Market - Crucial Rebound

The Shanghai market is developing the most important change. This is confirmed on the weekly chart. The rebound that developed this week has moved the Shanghai index above the support level between 1750 and 2000. This rebound is important because it confirms the importance of this support area as a rebound level. This support area is also the downside target for the head and shoulder chart pattern. This rebound confirms the head and shoulder pattern.

This rebound has also moved the index above the value of the third fan trend line. This changes the function of the fan trend line. In previous weeks the value of the third fan trend line acted as a resistance level. The close on the weekly chart above the value of the third fan trend line shows the line is now acting as a support level. This suggests that the index can rally towards the value of the fourth trend fan trend line.

The position of the fourth fan trend line is not yet confirmed. The line is placed near the upper edge of the long term GMMA. Future index activity will confirm if this position is correct. The position of the line is near 2600. This suggests a limit for the next rally as it develops from the support level provided by the third fan trend line.

This is a developing fan reversal pattern. It is a long term reversal pattern. The index will continue to have rally and retreat behaviour. The retreats will use the value of the third fan trend line as a support level. The index can slide down this support level again until it encounters long term horizontal support near the 2000 level.

This recent rally is not part of a "V" shaped recovery. The rally is part of the normal fan pattern development. The recovery often develops a rounding bottom or saucer pattern.

The trading environment is suitable for short term rally trends. There is a high probability of several more tests of the 2000 support level. These tests may also include some temporary index dips below 2000 and moving towards the 1750 support level. This is part of the pattern of climax selling that precedes the important change in the direction of the trend.

The fan pattern reversal often has six fan lines. This suggests the developing market reversal still has several months to continue to develop before a new up trend is completely confirmed. The market has an 35.3% probability of continuing to rise after the National Day holiday.

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Charted by Daryl Guppy using NextVIEW Advisor Professional

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