SHANGHAI COMPOSITE – UPTREND INTACT
Trend: Short term down; medium and long term up. Strategy: Traders sell short the bounces. Investors hold. This chart (top) shows China’s Shanghai composite index having an enormous rally during 2006, rising 130% in one year. Interestingly, the recent 9% drop in one day is a minor blip on the chart, given the enormous rally of 2006. Right now the index is in fact consolidating from a solid run-up over the past six months (in particular) and there’s no reason for concern at all based on the current chart. • The weekly stochastic oscillator (bottom segment) shows more downside to come in the short term before it becomes oversold. This, I believe, is merely part of a natural correction in price. Market players, however, do need to be aware of another selling spree to come. If trading this index, sell short for a drop to 2400 (the price at time of writing is 2840). That’s another 15% downside on this index (which will be much less than that on the JSE and other world markets). That will set up an excellent buying opportunity lower down. Finally, a closing price above 3000 again on this index (the 2007 highs) will be a very bullish sign.