Testing Fan Trend Line 4 on Shanghai Index

The Shanghai Index is developing important activity and this will decide the strength and importance of the resistance level near 2000. When the market opened higher on November 27, Thursday it showed developing market strength. However, this activity was not strong enough to overcome resistance near 2000. The market retreated from the resistance level. If the market had continued upwards above 2000 then the position of fan trend line 4 would be confirmed and traders would look for a continuation of the strong trend breakout.

The market fell on November 27 and this shows continuing short term market weakness. The interesting feature is the development of a short term support level near 1850. This is near to the value of the lower edge of the long term GMMA. This behaviour suggests there is a reduced probability the market will re-test the support level at 1750. There is a higher probability the market will develop a rebound from near 1850 and test resistance near 2000-2100.

The position of fan trend line 4 is confirmed when the market develops a rally above 2000 and then has a successful retreat and rebound. This behaviour will confirm the correct location of fan trend line 4.

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. The essential feature of the Shanghai index activity is the character of resistance. There are three resistance barriers.

The first resistance barrier is the historical support/ resistance level near 2000-2100.
The second resistance barrier is the value of the long term Guppy Multiple Moving Average. The upper edge of this indicator is near 2050. A successful trend breakout rally must develop sufficient strength to move through the group of long term moving averages. The long term GMMA is developing some compression as this shows trend strength is also increasing.

The third resistance barrier is the value of fan trend line 4. We continue to estimate and adjust the position of fan trend line 4. The position is confirmed when the index develops a rally peak and retreat pattern. There is a high probability the position of fan trend line 4 will be near the 2000 resistance level.

A successful breakout above the three resistance features is very bullish and part of a long term trend reversal pattern. There is a high probability the market will continue to develop a consolidation pattern. A successful move above the value of fan trend line 4 will allow the construction of fan trend line 5. The position of fan trend line 5 cannot be calculated until the first rally above fan trend line 4 has been completed.


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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.