These 2 lines determine direction of Shanghai Composite

7-year high above, 7-month trend line below

These two lines act as price boundary where bulls and bears will fight it out. Price will take the path of least resistance.

Shanghai Composite weekly chart 2009 - present

Shanghai Composite weekly chart 2009 – present | Source: Investing.com

For now, November and December price action/false break/bull trap has revealed that 3478 (July 2009) is still an effective resistance. Trend line below, your turn to proof your worth.

Without finding a good base, it is hard for the market to find a good footing to rally. Back in November I wrote this:

Shanghai Composite’s initial rally to 5178 and subsequent correction to 2850 was attended by very high volume. It is very conceivable that a significant portion of participants are holding on to losing positions and looking for a way out. This raises the probability that there is at least one more down leg for Shanghai Composite.

I still think that there are more losses – this was reinforced by Monday’s market breaking action. I don’t have high opinion of trend lines – horizontal levels are more reliable – so I think this trend line will break. That low of 2850 (August 2015, ‘x’ marks the spot) should be tested as well and it is a more interesting level.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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