PRICE CHART: SAUCER PATTERN DEVELOPMENT

Saucer patterns are long term trend reversal patterns. They take many months to develop. Saucer patterns in a market index may take even longer to fully develop. The saucer pattern is not easy to recognise until it is more than half completed. The Shanghai index has developed a long term saucer trend recovery pattern. The pattern started in 2008 August. The bottom of the saucer curve was confirmed in 2008 October and November. The retreat and rebound in the first week of December helped to verify the correct placement of the saucer trend line.

The saucer pattern confirms an increase probability of a long term trend reversal. This is a high probability pattern, but these patterns can fail. These are the features that show the success of this saucer pattern.

• A successful retest of the saucer pattern trend line. This line is used as a support level. The index can close near 1950 and still remain above the saucer pattern trend line. The index close today is equal to the value of the saucer trend line.

• When the value of the saucer trend line is above the 2000 support level then the saucer trend line becomes the most important support level.

• When the value of the saucer trend line moves above 2300 then the long term trend reversal is confirmed.

The position of the saucer trend line may be adjusted as new index activity develops.

The upper edge, or lip, of the saucer pattern is near 2700. As the trend breakout moves towards this level a handle may develop in the pattern. The handle is created by a short term market retracement. This pattern provides an entry opportunity for a continuation of the uptrend.
A fall below the saucer trend line has support near 1900. This support comes from a straight trend line that starts on 2008 November 7 and uses the low of 2008 December 2. A fall below this trend line has a retest of support near 1700.

The Guppy Multiple Moving Average (GMMA) relationship also show a developing trend strength. The short term GMMA has moved above the long term GMMA for the first time since December 2007. This confirms developing uptrend strength.

It is normal for the breakout rally to develop a retreat and then a rebound. The retreat can rebound from support near 2000, or from the value of the saucer trend line.

The current index activity is confirming the correct position of fan trend line 4. The fan trend line pattern also confirms the development of a long term trend reversal pattern. The most important development in the next several days is the ability of the market to move above strong resistance near 2000-2100. This level is also near to the value of the upper edge of the long term GMMA.


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Daryl Guppy, well-known international financial technical analysis expert. Appears regularly on CNBCAsia and is known as "The Chart Man". He is an equity and derivatives trader and author of books including Share Trading, Trend Trading and The 36 Strategies of The Chinese For Financial Traders. He has developed several leading technical indicators used by investors in many markets. His weekly analysis newsletters get favorable comment in Asia and Australia.