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Shanghai Composite approaches potential resistance

3500 – 3600 potential resistance

This zone between 3500 – 3600 could become resistance for Shanghai Composite, one which could lead to another leg of selling.

Firstly, it is a historical level which is verified significant by points A – E in the chart marking past instances the index reacted to this zone. Past levels act as interchangeable support resistance and one that is as prominent and well-tested as this zone seen on the monthly chart is likely to play a strong role.

Secondly, 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. Question: what levels are bears looking at?

We have one individual in our community who is an active investor/speculator in China. She shared her take with us last Friday:

When Shanghai Composite fell to 3500, many investors entered the market thinking that the level could serve as support. They saw market correction until then as a throwback. Many thought ‘National Team’ will hold the line. These people were mistaken. I am afraid the current rally is not a real recovery.

In my opinion, a wonderful example of market sentiment right now.

Shanghai Composite monthly chart 2007 - present

Shanghai Composite monthly chart 2007 – present | Source: Investing.com

 

As for those who don’t know who the ‘National Team’ is, here is a primer from CNN Money.

The China Securities Regulatory Commission, which polices the country’s markets, organized the purchase of shares using cash supplied by the central bank. Much of the actual buying has been carried out by China’s so-called “National Team,” a group of state-backed investors, brokerages and funds that have purchased shares at the government’s behest.

8Shares

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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