China: Shanghai Index continue to develop strong up trend reversal pattern

The Shanghai Index continue to develop a strong long term up trend reversal pattern. There are three features of this up trend reversal pattern. The first feature is the pattern of three support and resistance levels. The central resistance/support level is near 2000. The index is oscillating around this central resistance support level. The lower support level is near 1750 and this has been tested several times. The upper resistance level is near 2300. This level has not been tested recently.

The second up trend reversal feature is the pattern of fan trend lines. The position of fan trend line 1, 2, 3 and 4 have been confirmed. The recent series of index retreats has confirmed the position of fan trend line 5. All the fan trend lines start from the high point on 2008, January 15. The recent high point near 2015 on 2008 December 22 helps to confirm the position for fan trend line 5. This fan trend line is acting as a resistance trend line. A move above the value of fan trend line 5, currently near 1934, is bullish. A move above the horizontal resistance level near 2000 is also bullish.

The pattern of fan trend lines is a long term trend reversal pattern. This pattern has been developing from 2008, January The pattern will continue to develop with fan trend line 6, and possibly a fan trend line 7. The position of fan trend line 6 cannot be confirmed until a breakout develops above the level of fan trend line 5.

The third up trend reversal feature is the long term rounding bottom or saucer pattern. When a security develops a rounding bottom or a saucer pattern traders use the exact position of the saucer trend line to set the stop loss condition. This exact method cannot be used with the Shanghai Index. For index analysis the long term saucer pattern is used to signal the developing pressure for a trend change. The position of the saucer pattern trend line is adjusted as the market activity develops. The position of the saucer pattern trend line is adjusted to include the lower index activity on December 25, Thursday and December 26 Friday.

The shape of the saucer pattern is continuing to develop. The position of the saucer pattern trend line is adjusted to include new price activity development. The key feature is the development of retreat and rebound points.

The combination of resistance/support, the fan trend lines and the saucer pattern confirms the potential to develop a long term change to an uptrend. There is a high probability the market will continue with a rally and retreat pattern. The rally resistance is near 2100 and the support is near the 1750 area.



This article is a continuation of a previous article. Related previous article here.

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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.