Originally published by Guppytraders.com
The Shanghai Index has developed a strong rebound from the 3140 level. This now acts as a support level. There is a recent temporary resistance level that developed near 3175. The move above 3175 is bullish and has an upside target near 3210.
There is increasing evidence that a trend change has developed and that the downtrend pressure has weakened.
The long term Guppy Multiple Moving Average (GMMA) averages have compressed and have stopped moving down. The downwards movement has reduced and the long term GMMA is moving sideways. It is slightly above the level of the upper edge of the trading consolidation band. This shows a reduction in bearish pressure.
The short term GMMA moved above the upper edge of the long term GMMA and developed expansion behavior. It is bullish now the lower edge of the short term GMMA has moved above the upper edge of the long term GMMA. It is too early to know if this will develop into good separation between the long term and short term GMMA, but the current situation is the most bullish since the rally in early January.
Investors watch for a sustained close above the upper edge of the consolidation band near 3140 because this confirms the potential to develop a sustainable new uptrend rally continuation. Investors watch for a successful retest of the 3140 level as a support level.
There are two resistance features to overcome before the rally breakout becomes a sustainable uptrend. .
The first resistance feature is a combination of the recent resistance level near 3140 and the long term Guppy Multiple Moving Average. The 3140 level is the upper edge of the consolidation trading band. The value of the upper edge of the long term GMMA is near 3140. A strong and sustained move above this level is bullish and this has been achieved.
The second resistance feature is the long term uptrend line that defines the development of the trend in the Shanghai index. The uptrend rally can continue to move upwards using the uptrend line as a resistance feature. The current value is near 3340.
The weekly Shanghai Index chart has a trading channel. The lower trend line is placed only with the benefit of hindsight. The first anchor point for the trend line is March 2016. It has been tested as a support level in June 2016, October 2016 and January 2017. The current index activity is using the lower edge of the trading channel as a support feature.
The current level of the upper edge of the trading band is near 3410 so a breakout above this level is also very bullish.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.