Technicals | Mar 13 2013
Bottom Line 12/03/13
Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up
Technical Discussion
'From where price now sits, it would mean a dip back down towards 2235.' In our last review we were proposing the need for a healthy dip in China's Shanghai Composite Index to take hold. Not because we have turned bearish in any shape or form. It is just that for strong trends to stay healthy and not form into overheated bubbles, resting phases are required. And with a formidable resistance zone directly overhead on our last review, and with price well overbought and not having had a decent rest in over 2 months, the odds that a breather was going to be close to hand were starting to increase by the day. The minimum pullback zone and our initial point of focus was the 38.2% retracement zone. Which is where our initial 2235 target came from. Since our last review price has now pulled back to 2259. Still a little short of minimum expectations be it pretty close to this point. And a near on 200 point drop since we last looked in on the Index. I'd still like to see a little lower though. The 50.0% retracement zone which is more typical off an initial move like the one we have seen off the major lows, targets around 2200. And outside the psychological factors attached to this round number, the indicator that I think will have more of a say in these matters if another dip into our target zone was to transpire from here, is our Divergence Indicator.
Take a look at our chart tonight. A clear example of potential Type-A bullish divergence sitting in the wings if a dip below the recent lows circa 2259 takes shape over the coming weeks. Type-A bullish divergence is one of our very reliable indicators that we keep a close eye on if price makes another low below the previous pivot point down, yet our indicator does not follow through in same. We see its reliability time and time again as a powerful weapon in turning around the immediate trend. And when it occurs around price confluences, which in this case is our typical Fibonacci pullback zones, then we need to be well and truly on the alert. The dip thus far has been needed and is reasonably healthy to this point. Yet I'd still like to see a little lower before fuel is re injected back into the Bourse, which for mine continues to favour further upside longer term.
Trading Strategy
We don't make definitive recommendations on ASX listed ETF's. Yet in our last review we recommended keeping an eye on those related to this market on the proposed dip, if they showed similar chart characteristics to the Shanghai Composite. Make sure you do your research though, and always be aware of potential liquidity issues. They really can be good instruments though for obtaining exposure to those less easily accessed emerging markets. If this is your focus in relation to balancing portfolios. So something to keep in mind. For now we continue to watch for a little more depth to this move, as the Index continues to look a likely candidate for buying on the dip. Especially if 2200 can continue to hold.
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