Shanghai Critical Trend Consolidation
Daryl Guppy | Aug 04, 2017 11:55
Originally published by Guppytraders.com
The Shanghai index has moved into a critical consolidation area between 3265 and 3290. This area is critical because it defines the area that has the potential to become a triple top pattern. In 2016 November the Shanghai index briefly consolidated in this area following a strong rally from 2969 in 2016 September.
The lower level of the consolidation area near 3265 acted as a resistance level from 2017 February until April. The breakout above 3265 again failed the move above this consolidation band and the market fell heavily to a low of 3017.
This pattern created a double top pattern with tops in 2016 November and 2017 April. The double top pattern has two interpretations.
There is a danger that the double top will become a triple top pattern with the market failing to move above 3290. In this situation the market may develop some consolidation between 3265 and 3290 before retreating and retesting the lowers near 3130.
This is a low probability because the Guppy Multiple Moving Average relationships are much more bullish than they were in 2017 April when the index last moved into this resistance level.
The double top pattern has a bullish interpretation when the index is above to sustain a breakout above the double top pattern. These breakouts are often very powerful because they show that the long term selling that created the resistance level has been overcome. The breakout signals new participants have entered the market and they are making their new profit calculations based on their entry point near 3290.
It is too early to know if this breakout will develop, or if it will fail and become part of a triple top pattern. The key feature investors are watching is the behavior of the index consolidation between 3265 and 3290. It is very bullish if the consolidation uses 3265 as a consistent support level. A breakout above 3290 has the first upside target near 3335.
The trend strength is defined by the long term group of average in the Guppy Multiple Moving Average Indicator and the relationship between the two groups of moving averages.. The long term GMMA continues to remain well separated showing good investor support for a continuation of the uptrend and a move above 3290.
The behavior of the short term GMMA also suggests continuation of the uptrend. The short term GMMA provides information about the thinking of traders. The wide separation shows traders are confident about the uptrend.
There is also a consistent and steady degree of separation between the two groups of moving averages. This is a feature of sustainable trends.
We use the ANTSYSS trade method to extract good returns from these trend movements.
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Axicorp . Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.
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