Technicals | Aug 04 2011
LAYMANS:
Global markets remain awash with just so many factors at the moment that it really is difficult to know which way to turn or what to think. I guess this is where being a technician has its advantages. We have a chart which provides us with a platform from which to analyse price action. It's not really that simple of course, yet it does reduce our world pretty much down to a common factor, as against a kaleidoscope of fundamental information that is virtually impossible to make coherent or accurate trading decisions from. It's difficult to remember a time when so many influences have come together at once that can have such an impact on market direction across all time frames. In our last review, we left the Shanghai Composite well overbought with the expectation that a retracement would be near. This has in fact occurred since, and if we are to have any shorter term optimism here for price, then the recent lows at 2677 will need to hold. And right at this point time, there are no guarantees that this is going to happen. Especially as volatility has potentially reentered the fray yet again.
TECHNICAL:
Price was well overbought in our last review. And although we saw a dip down immediately ensue, another attempt to push higher was also witnessed, only to be immediately resisted under the influence of Type-A bearish divergence. This reliable indicator very rarely lets us down, with price almost immediately retracing as expected down to the more typical 50.0% – 61.8% retracement areas aligned to 2718 and 2693 respectively. Price has actually tagged just that little bit lower in recent trading down towards 2677. To be honest, this level really needs to hold now if we are to continue to maintain the view that a reasonable upside move is on the verge of triggering here. We now have a small box or ledge pattern that has evolved between 2677 and 2727. So a resolution to this pattern in either direction is now being closely monitored. I only look at these smaller patterns if a minimum of 5 price bars can make up the structure of the pattern. and as of yesterdays trading session, this is now the case. So with the typical retracement zone now achieved, the bearish divergence fully unwound and price now well oversold, we are looking for a break to the upside as the highest probability outcome. I do have some reservations though shorter term. And that is that wave-(a) vs wave-(c) equality on the intermediate count has yet to be attained at 2540. This also measure in almost to the tick, a retesting of the lower boundaries of the support channel that has been in place since November last year. Some minor horizontal support also sits just above this price zone. Any push towards this area may well be a healthy development though, especially in regards to whether price has some underlying strength attached to it or not. This type of short term bearish outcome will certainly be eyed if our immediate micro ledge pattern breaks down below 2677. So still further resolution required here. And until the recent highs at 2827 can be broken past with conviction, then prices shorter term intentions may just remain a little in limbo here.
Trading Strategy
2/8:
From an aggressive trading perspective, a push out of the smaller ledge pattern above 2727 would be a valid entry on the long side with stops placed below 2677 if this area is not broken down from beforehand. It is an aggressive stance as mentioned, yet also low risk and potentially high reward. The thing is, we are expecting a period of volatility here so unless you like scalping positions, which I don't, then assertive trading strategies can easily back fire. A break above 2827 is what we are ideally looking for here now to trigger a more sustained upside move, at least back up to the upper boundaries of the lowering support channel circa 2900 – 2950. Ultimately though, I can't get bullish here again until a run that sticks above 3067 can be established. And that still looks a little way off just yet.
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