Where is China A50 headed? 5 technical levels

These 5 lines/levels in China A50 for analysis i.e. bullish/bearish, positive/negative sentiment, pattern broken/not broken. Rather than jump allover the place reacting to price, use these levels to form your own opinion.

 

5 levels to help you with your China A50 analysis

  • Trend line red at top #1 acts as resistance.
  • Twin blue trend lines at bottom #2 acts as support.
  • Twin blue trend lines are drawn by connecting the extreme points as well as closing/zones of congestion.
  • #1 and #2 together define a near symmetrical consolidation triangle that China A50 is stuck in. See story here.
  • Brown horizontal line is drawn on line chart which shows the highest end-of-week close for the index till date. See inset.
  • Above this line, China A50 suggests a consolidation followed by bullish break; below this line China A50 suggests a bull trap aka false break that has a strong bearish hint.
  • Traders might want to know that major market tops are often accompanied by false breaks which lead to correction. This happened for China A50 back in 2015. There is a technical analysis concept involved, it is called a ‘buying climax‘. From Investopedia,

    Buying Climaxes
    One of the clearest signals of the end of a bull market is a buying climax, during which volume escalates to extreme levels and bullish euphoria permeates media coverage of stocks, market indices or commodities. The key trait of a buying climax is the exhaustion of demand as the last buyers enter the market. The final surge of buying typically leads to price spikes, which may last for days, weeks or months. As demand wanes, prices can go into steep declines as sellers attempt to unload positions in the relative absence of buyers.

  • Green line #4 marks Q1 closing for China A50 i.e. it’s closing level on the last trading session in March. Above this level, Q2 ’17 is a continuation of previous 3 quarters of Q-on-Q uptrend. Below this level, Q2 turns into a loss which could terminate the previous sequence if it continues till the end of June.
  • Short pink line #5 coinciding with blue #2 is the low of this quarter. Below #5, China A50 breaks triangle, makes new quarterly low.
Weekly chart of China A50 in candlesticks and line

Weekly chart of China A50 in candlesticks and line

 

This is China A50 top back in June 2015.

China A50 top in June 2015 ended on a false break

China A50 top in June 2015 ended on a false break

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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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