01 Feb

Shanghai Composite Index mid to long-term technical analysis

Shanghai Composite Analysis January 2016 from Cary Artac on Vimeo.

The video above was recorded on Tuesday, January 12, 2015 examines the Shanghai composite index. The text below is essentially the exact verbiage you’ll hear in the video. The Shanghai has once again grabbed front page financial headlines over the last week or two following less than stellar manufacturing data out of China, sending the index back into price territory not traded since last September, which has helped drag the US market down in similar fashion. I’ll also be taking a brief look at the FXI, the ishares China large-cap ETF, a rough tradable equivalent to the Shanghai Composite. A reminder that the FXI is covered in every edition of my Monthly ETF Snapshot, along with 20 other popular, high volume ETFs. The Monthly ETF Snapshot is only 20$/month, and you can view the January issue by reply to the email that delivered this video with something along the lines of Monthly ETF Snapshot. So with let. Let’s move on to the Shanghai Index analysis.

I don’t want to confuse the video analysis by drawing too strong a comparison between the underlying Shanghai index and the FXI, for if you look at the side-by-side comparison you can see the ETF has actually violated last August’s move low, something the Shanghai Index has yet to do. Page 5 of my January Monthly ETF Snapshot indicates that a January FXI settlement below 33.29 would signal 27.33 over the next several months, quite possibly by the end of February. However, in my opinion the FXI ETF is not considered an entirely reliable precursor to Shanghai composite price activity, for ETF’s contain inherent structural elements that allow for exaggerated price moves.

Also, I know that most of you are watching this video for a sense of intermarket correlation between the broader US stock market and the Shanghai composite index, so I think we’d both agree that following the Shanghai index and its relation to important price support levels may provide a greater correlation for US stock market behavior as we look ahead to the 2nd Qtr.

So with that said, as I also mentioned in an August, 2015 video that still remains on YouTube, a long-term two thirds speed line projected off the 2008 low found at 2940.71 for the month of January, can contain selling into later 2016. In other words, despite all the financial press hyperbole, this market is once again merely approaching long-term support.

Nonetheless, a January settlement in the Shanghai composite below 2940.71 would then signal a February test of the 2493.02, seven-year channel bottom – also able to absorb selling through 2016 and a meaningful downside tipping point over the same time horizon.

While not anticipated between now and the end of the 2nd Qtr, a monthly settlement below the 2468.81 channel bottom, rising to 2493.02 in February, 25 17.23 in March, and to 2541.44 in April, would maintain an aggressively bearish dynamic into later year, a retest of the 1664.93, October 2008 low than expected within 3-5 months, the index vulnerable to continuing south into the 600 handle over the following 8-12 months, price levels not visited since 1996. Once again, this bearish scenario is not one that I expect, but I think it’s worth outlining, for this event would likely trigger a similar bear market in the SP-500.

To recap, the 2940.71 speed-line can absorb selling into later year, this indicator rising to 2955.37 in February, 29 70.04 in March, into 2984.70 in April, above which a stable to bullish dynamic continues into the second quarter, with recovery expected over the next several months into the 3539.26 region, essentially the December monthly settlement price, able to absorb monthly buying pressures, with a settlement above likely indicating a good low into mid-year, the August 2015, 4006.33 high then expected within 1-2 more months, also able to contain monthly buying pressures when tested and a meiangful upside recovery point through the balance of 2016. To recap the downside scenario, longer-term selling pressures really don’t emerge unless we place a monthly settlement below the 7-year channel bottom currently at 2493.02, this scenario covered a few moments ago.

Please email or call me with any questions you might have regarding my full assortment of advisory publications, and please stay tuned for continued market analysis videos. I’m Cary Artac, and thanks for watching.

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