Shanghai Composite Consolidates Below Support

11/23/05 11:38:49 AM

by Arthur Hill

After breaking support in late October, the Shanghai Composite has traded flat as it gears up for its next move.

Security: $SSEC
Position: N/A

On the daily chart (Figure 1), the index surged from mid-July to mid-September and then declined from late September to late October. The decline retraced around 62% of the prior advance, which is normal for a correction. However, the index broke an important support level at 1130 in late October. The index must recover and undo this support break to have any chance of reversing the current downtrend.

FIGURE 1: SHANGHAI COMPOSITE, DAILY. The index surged from mid-July to mid-September and then declined from late September to late October.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

Since breaking support, the index has traded flat the past few weeks and a rising flag has formed. This is a bearish continuation pattern that would be confirmed with a move below the mid-November low (1075). This would call for a continuation of the September-October decline and target further weakness toward the July lows around 1000. Should the November lows hold, look for a break above broken support at 1130 to revive the bulls.

Bollinger Band width moved to its narrowest in many months. This signals a contraction in volatility, and such contractions usually precede a move. Bollinger Bands do not offer a directional bias, but we can watch the upper and lower bands for clues. A break above the upper band would show strength and a break below the lower band would show weakness. Given the support break and the September-October decline, the odds favor a continuation and further weakness. Happy Thanksgiving!

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Shanghai Composite Consolidates Below Support

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