Technicals | Apr 28 2016
Bottom Line 27/04/16
Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Down
Support Levels: 2772 / 2639 / 2437 / 2280
Resistance Levels: 3016 / 3328 / 3678
Technical Discussion
Reform measures in China over the past couple of years that have created a bumpy ride for markets may now be taken over by policies aligned to supporting economic growth. Some of these policies include the Central Bank lowering reserve requirements for banks which in turn allows them to lend more. The outcome thus far has been a pick up in credit growth. Property market transaction restrictions have been eased. Government spending on big projects is set to start rising again, and margin lending restrictions on shares have recently been removed. New policies take time to kick in yet some early positive signs have been a sharp rebound recently in the manufacturing sector and an increase in property sector activity. Early days yet the titanic may slowly be trying to turn !
Reasons to remain bearish:
→ interest rate cuts to this point having mixed results only
→ the drop off the June 2015 highs was extremely strong
→ price chart revealing technical damage
→ more positive signs returning technically above 3678
The fundamentals are the drivers of markets with the technicals related to timing market moves and changes in sentiment. We've seen some solid changes to fundamental policy as stated in our introduction yet to this point price remains unconvinced. A rosy picture can be painted as much as we like yet unless price action can back it up, from a trading perspective it means for nothing. Bearish divergence that has been lingering around since February has now finally triggered and is almost back to oversold. Yet what is dragging the chain here is price action and this is what needs our full attention. Yes it could spring into gear at any time yet for the moment the rise off the late February lows has simple lacked conviction. So what this sets up is the potential for it to drop again with the best case scenario being a double bottom back towards 2639, with the worst case being a resumption of the strong downtrend with price setting its sights on strong technical and psychological support circa 2000. A market we need to keep a very close watch over throughout 2016.
Trading Strategy
We don't trade the Index yet put it this way, if the local Chinese Bourse can find its mojo again, then our markets here in Oz will likely gain some confidence as well. For now though there is still the potential for another round of pain throughout 2016 before we can finally look to start building on some gains. Not what we all want to hear yet this is where the bias continues to sit. Beyond 2016 though continues to have potential. Overall the patience of traders here in Australia has been sorely tested for a number of years, yet in our view now is not the time to throw in the towel. A low point still requires confirmation yet we could be getting close!
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