Snapback or Touch and Go in China
- Posted by Greg Harmon
- on December 25th, 2014
The Chinese market has been on fire since mid July. And after a 50% move higher it is finally showing some signs that it may at least pause or snapback the way a dragon moves in the parade. The weekly chart below shows the move over 2450 marking a change of character, from a flat basing to an uptrend. But it also shows that the Shanghai Composite bounced lower as it touched the Double Top from April and November 2010.
Oddly, this is also where the 200 week SMA peaked. I wonder if that is significant? What is significant is that had run up so fast and so far that the momentum indicator RSI had reached extreme levels over 90. A pullback makes sense at this point.
The Chinese market will now get an opportunity to show up how strong it is. A break below 2820 would be a strong sign that it was an overblown move and a retest at 2450 is in the cards. But a hold in the 2900 to 3100 range would give it the time to reset the momentum indicators and continue higher in 2015.
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Gregory W. Harmon CMT, CFA, has traded since 1986 and held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)