A Deep Dive into the Shanghai Composite

China continues to be the land of potential opportunity. With a more capitalistic mindset that view is exploding. Known for their cheap labor and manufacturing, more and more their citizens are garnering Western educations which could transform the country. This view led to a strong run higher in the Shanghai composite along with global markets in 2006. The chart below shows the intense momentum that built during that run.

What followed was a deep pullback with the financial crisis and then a bounce. The bounce failed at a 38.2% retracement of the drop. A long drift back lower, while the rest of the world stock markets boomed, found a bottom at a higher low and turned back up in 2014. That run made it to 78.6% of the initial drop before crashing back down again.

Another higher low in 2016 was the launching point for the current trend higher in a rising channel. Momentum has held in the bullish zone since 2015 despite the pullback and now the Bollinger Bands™ are squeezing. As they squeeze the price action is meeting resistance. But notice what happens when the Bollinger Bands squeeze. This often leads to an explosive move as it did in 2006 and again in 2014. Will it happen again?

A third leg higher would give a target to between 4400 and 5300 as Wave V in an Elliott Wave projection. It could see 6600 as a projection on a 3 Drives pattern with the legs 150% extensions of each other. The key to the upside would seem to be the ability to move over 3660, and then the prior high at 5178. A move back under 2700 would confirm a downtrend.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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