It’s urgent – Shanghai needs to recover

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The US Non-Farm Payrolls released on Friday night our time confirmed my view that the US and Europe are playing to script. The rally we’re enjoying today, and that the US enjoyed on Friday night, is a ‘Steady as She Goes’ muddle through scenario in play.

The Shanghai index remains at risk and it’s one that I’m looking at by the hour.

As I highlighted at the end of July, Shanghai’s index was a leader in recovering from the Global Financial Crisis (GFC). Shanghai bottomed and recovered 129 days earlier than the US and the world back in 2008/2009. It concerns me that the majority of the world’s indexes have stabilised but Shanghai is making and breaking key lows.

The question on my mind is, “Are they again leading us lower?”

Positives

1) Support at the 2,100 level has held. There are minor levels all around, and many levels we could bounce off now that prices have broken below the 2,134 level.

2) There was no good reason for Shanghai to bounce on Friday, as illustrated by the last green bar on the right. Yet it did, and the reason was the market had correctly seen through the release of the Non-Farm Payrolls in the US of 163,000 jobs created last month versus the 100,000 consensus forecast.

3) The market is very sensitive to levels below 2,134. The 2,100 level is now holding as an important level, and so will be 2,000 if 2,100 breaks.

4) We are just below my level of 2,134, at 2,133. If we can flick back above it, then the breach we’ve had may be viewed as minor and temporary.

Shanghai Stock Exchange: Now 2,133 ‘Hanging in there – just’

Negatives

1) The 200-day moving average is still pointing down.

2) The minor level of 2,049 did not hold, albeit we’re now above it.

3) If the market falls by 15%, it would take us down to the major level of 1,814. It will be difficult to forward predict a level this market could or should hold before this level.

4) As I’ve previously mentioned, we are now through an important level of 2,172. The first quantitative easing in the US was on 6 March 2009, which also marked the low in the US S&P500 index post the collapse of Lehman Brothers. Shanghai had already begun to recover, but at that point it was at 2,172, marking an important level. As much as 2,134 is an important level, 2,172 is just as important on an inter-market analysis basis.

5) We really need to see a bounce this week! I have been saying this for two weeks now. This highlights the urgency of the need for Shanghai to recover.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.

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