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Pay attention to China A50, financials as it nears this apex

There are 3 charts I want to share about China A50. At first glance, it is coming to the apex of a great big triangle over a duration of more than a year – that’s pretty significant. Trend suggests that we should see an upside break of the triangle as a kind of continuation. However the bigger picture suggests that there is a big resistance on top.

Whatever it is we let price tell us what to do but there are some things to look out for so I am going to leave them here.

 

Chart #1 – Big symmetrical triangle, quarter to quarter gains

There are 3 features I want to highlight in this weekly chart from August 2014 – present.

 

Symmetrical triangle

First feature is the set of 3 trend lines that define a close-to symmetrical triangle. We are coming very close to the apex so many the index could break in a big way. Chart pattern theory says symmetrical triangles can break in both directions but theory can often be wrong. This is because theory calls for high probability patterns but NO ONE ever said that they would be 100% guaranteed patterns.

Theory also suggests price should have broken earlier and not so close to the apex. Chart pattern theory also does not exclude price from moving out of a triangle to become a channel. Since this is a fairly big pattern however, I do believe that there could be some kind of significant price movement which definitely should interest traders.

China A50 weekly chart August 2014 - present

China A50 weekly chart August 2014 – present

 

3 quarters of gains

Look at the boxes printed here by Autobox V2. We have one more trading day tomorrow to close the month but unless that is a huge crash, it is probably alright to say that China A50 has 3 quarters of positive gains including this one. If we look at the boxes and compare highs and lows, then it is correct to point out that the index bottomed in Q1 2016 and has 4 rising quarters from Q2 till date.

If we accept this as trend, the continuation trade is to bet on China A50 to continue rising.

 

10564.50 a strong level

This is a weekly chart so where candlesticks close are important. See the purple line. This was the highest level the index closed in the 49th week of 2016 and Week 8 this year. Since late 2015, China A50 has never closed above this level. It is a resistance and a significant one.

 

Chart #2 – Resistance tried and tested level

Switching to a monthly chart, price action backs the resistance at (and above) 10564.50. In fact a visual inspection of monthly closes reveals that there is a level at 10478 which is a tried and tested level. This level was only successfully defied once in November last year. Again just to point out that March ends tomorrow so unless something changes, it is likely for China A50 to close below.

China A50 monthly chart from May 2012 - present

China A50 monthly chart from May 2012 – present

Add in 10564.50↑ we have a resistance zone from 10478 – 10564.50.

 

Chart #3 – Line chart has a clearer picture

Line chart has a clearer picture and it confirms the resistance.

China A50 monthly line chart from May 2012 - present

China A50 monthly line chart from May 2012 – present

 

Interpretation of the whole picture

I put it together to see the picture this way.

  1. Strong resistance from 10478 – 10564 which has to beaten before China A50 can proceed higher.
  2. This zone is significant because of it’s duration.
  3. Trend is in favour of more gains but again subject to condition of resistance.
  4. The whole pattern was a symmetrical triangle so we had a whole year of consolidation. Yet this whole year of consolidation has not recovered half of what it lost in 2015 following the June 2015 burst.

I suspect that we are closer to some kind of support-finding action (to fall) first before it can rise further.

Take note we are at that point where coincidentally or not, all stars are aligned for some kind of negativity. See recent posts:

  1. Assorted forex, index charts; stock correction round the corner
  2. Next stop Hang Seng Index multi-year resistance at 25000
  3. Another confluencing signal or just a coincidence

 

Lastly also note that China A50 is 69% financial. It is almost a financial index – 43.67% of it’s weight comes from banks and 25.33% from non-bank financial constituents. With this piece of information, follow stock movement of China’s banks to reinforce your observations.

Table of FTSE China A50 index financial constituents and weighting (as at 19 October 2016) | Source: Wikipedia

Table of FTSE China A50 index financial constituents and weighting (as at 19 October 2016) | Source: Wikipedia

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

“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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