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Tuesday, November 17, 2015

Third Major Leg Down Ahead For Shanghai Index?

You can see my original post of July 8th and four subsequent updates covering China's Shanghai Index here for background information.

In my last update of September 8th, I noted that a bearish moving average Death Cross had formed on the Daily chart and price closed at 3170.45. Since that date, price moved sideways for over a month before it, finally, rallied to where it closed today (Tuesday) at 3604.80.

I have the following observations on the 2-year Daily chart below:
  • both gaps down in August have now been filled
  • a bearish Head & Shoulders has formed on the MACD Histogram, hinting of weakness ahead
  • price is approaching a triple confluence major resistance level around 3750 (comprised of the 200 MA, major downtrend line, and a 40% Fibonacci retracement level)
  • a re-test of a 200 MA is not uncommon after a Death Cross has formed and price usually drops  afterwards, often to new lows
I wouldn't be surprised to see some major selling come in sometime soon on this index to, possibly, take price down to around 2500, or lower (what would be Wave 5 for Elliott Wave enthusiasts).