Technicals | Sep 23 2015
Bottom Line 22/09/15
Daily Trend: Neutral
Weekly Trend: Down
Monthly Trend: Down
Support Levels: 2808 / 2437 / 2280
Resistance Levels: 3538 / 4185 / 4721 / 5179
Technical Discussion
It wasn’t a bad performance by the Shanghai Composite yesterday reversing a 1% loss to close the session out 1.9% higher. It certainly outperformed the other Asian Indices we cover with the Hang Seng down 0.75%. The mainlands small caps Indices clocked up even better results with the Shenzhen Composite locking in a 3.5% rise, and the ‘start ups’ ChiNext up a very solid 4.7%. That said overall the markets here continue to remain completely unpredictable, with growth concerns continuing to plague investors minds.
Reasons to remain bearish:
? consistent economic growth downgrades now becoming common place
? interest rate cuts to this point having little effect
? immediate dip has been strong
? price chart now reveals technical damage
A key outside reversal day was locked in yesterday where weakness throughout the morning session was reversed in the second half of the day with price closing strongly. Some technical traders flag key outside reversal days as technically significant yet from our experience they tend to simply reveal shorter term moves rather than anything more. So yes we may get some upside follow through for a couple of days yet beyond that the market is likely to remain erratic. Overall we continue to see scope for lower via a couple of aspects to the chart.
Firstly wave equality basis this strong bout of weakness comes in at 2379. Secondly Wave-C’s do frequently unfold as 5-wave patterns rather than three, so basis this there is still scope for one final swing to the downside from here. The recent move higher off the 2850 lows also doesn’t look overly convincing being choppy and weak in nature. And last yet not least is that overhead resistance and the 200 moving average are lining up together within the 3500 – 3700 price zone so this area is likely to be difficult to overcome shorter term. On the flip side if price does swing lower within the proposed 5th and final wave, it will be greeted with some strong looking Type-A bullish divergence. So we would definitely be looking for buyers to return pretty quickly if further weakness was to transpire over the coming weeks. So weaker first before we see some form of decent recovery continues to look high probability.
Trading Strategy
Chinese markets tend to affect our own markets here in Australia. So it’s no real surprise that with the Index dropping from 5178 in June to 2850 in August, our own ASX200 (XJO) has dropped from almost 6000, right down to the recent 4928 lows, with still scope for a little lower. To shine a light though, if price does drop lower from here, such a move by all accounts could well signal the end of this weakness. As such some solid buying opportunities for traders could be just around the corner.
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