Chinese Market Still Looks Strong

Shanghai Composite: 3323

Long Term Outlook Bullish, Short term Outlook: bullish

I can’t fail to be in awe of the longer term chart structure of the Chinese market. The trend is about as solid as a trend can get in an immature market such as this. Yes, it has gone up a long way, but the Jan – Feb consolidation spell has served to unwind medium /longer term overbought constraints to the extent that they are no longer an issue.

Last month’s push into new high ground has reasserted the trend decisively. Over the next couple of months I’m anticipating gains of around 6% from current levels – i.e. an advance up to resistance potential 3470/3535. On a more extended time horizon, I believe we will see further substantial gains up to 3850/3880 at least, if not 4065/4068. More immediately the market is expected to extend its advance up to what appears to be the nearest sizeable area of resistance potential centred on 3470/3535.

Initial minor support currently stands at 3148/3141, with more substantial support in the region: 3045/2980. A pullback to the latter area would likely represent an excellent buying opportunity.

What would weaken the outlook? Althouth a close beneath support in the region 3148/3141 would render the market vulnerable to continued short term weakness (initially to 2855/2852), this would not detract from the bullish longer term chart structure. In order to give a first clear warning sign that the longer term trend is faltering a closing break beneath 2732 would be needed.

Support: 3042/2961(fairly minor), 2855/2852(minor), 2749/2730(fairly minor), 2540 (Intermediate).

Resistance: 3470/3535(fairly minor), 3850/3880, 4065/4068.

Yahoo! Chart