Technicals | Nov 20 2013
Bottom Line 19/11/13
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Neutral
Technical Discussion
If the Shanghai Composite Index is to show it has the bullish substance we are expecting from it, then the coming weeks is going to be its time to finally shine. We have been big proponents that this 2013 poor performer was going to be the 2014 Index darling. Yet the proof in the pudding will only be revealed if price can start getting on with it with a bit more upside motive attached to it. So far we've labelled the move off the mid year 1850 lows as being leader waves only. And by that I mean, trending north strongly, yet with enough chop within the moves to reveal that the Bulls and the Bears are continuing to do battle. The Bears have obviously been reluctant to relinquish control. They've had it for over 3 years so I guess this is totally understandable. Yet from an Elliott Wave perspective, we need to start to see impulsive price action start to dominate. And even though only very early days to this point, the last two trading sessions may well be the start of exactly what we are looking for.
So we are labeling the chart with two leading wave ones. A higher degree Wave-1 & Wave-2 followed by an intermediate Wave-(i), and just recently the likely completion of the wave-(ii). Within wave theory, Wave-(iii)'s of 3 should be strong and impulsive. So if the analysis is to hold true, potent upside price action should now be on its way. And not before time. Above 2270 is the larger falling wedge pattern breakout point that should be further backing to this upside momentum. The recent dip to the downside for the labelled wave-(ii) tagged 2079 with the 61.8% expected retracement zone for this wave targetting 2080. So we could not have asked for more in relation to price reacting to the positive right on this target zone. As added backing, the recent swing lower also triggered some Type-A bullish divergence. And this is now well on its way to unwinding. Follow through now required.
Trading Strategy
We don't trade this Index yet if we did, it would certainly be in our line of fire in relation to a trade on the long side. Especially if the 2270 levels are broken past with conviction over the upcoming weeks. In past reviews we have mentioned how our small cap XSO Index here in Australia has been tracking in similar style to China's Bourse. And this was potentially quite positive looking forward if the relationship was to continue. Especially with the last few years being so poor in relation to our small cap stocks. The last two trading sessions though have seen these two markets diverge a little. The Shanghai Composite strongly positive whereas our XSO has been agonisingly subdued. No assumptions being made on just a couple of sessions of course, be it the XSO needs to start lifting its game over the coming weeks if progress within its own expected turnaround is to remain on track. Hopefully it can start playing some catch up.
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