The six (6) months steep correction of Shanghai Index may have seen a bottom after the index respected and bounced from key historic 3,000 support level; this level has a strong historical basis of a solid base support for the index because the index built its’ strong base at this level prior to its’ ‘bubble like’ sharp rise in 2007. The steep correction that lasted for six months was a typical sharp ‘zigzag 5-3-5 corrective wave II’ that comes after an extended impulse wave I.
The market now face a very strong 3,650 key resistance level, the index established a ‘pile driven foundation pattern’ at this level last Q2 of 2007 before the index shoots up vertically to 6,100 peak; the index need to consolidate in a tight range between 3,450 to 3,650 level and reduce intra-day volatility as the market enters an accumulation phase as it slowly takes the sting out of the downtrend momentum and develops its’ staging area for a stronger rise that may propel the index above 3,650 key resistance in the coming week.
HANGSENG INDEX
Likewise, the five (5) months pull back of Hangseng Index may already hit floor last 3/18/08; the downward resistance break-out last 4/3/08 was a precursor to a trend change. Unlike Shanghai Index, the 5 months retracement period for Hangseng was a double zigzag 5-3-5 (corrective wave IV) separated by an “X” wave in between.
The on-going rally had its initial target at 27,000 level but the index need to consolidate between 25,300 and 25,800 for couple of days on sustained volume like we have this week before it attempts the 27,000 target level.
Anywhere between the consolidation stage is a good time to accumulate shares with target profits near the 27,000 key resistance level of the index.
The probability of the index re-testing 24,500 level in the near future is very small because the index had already built a relatively strong base at that level prior to its’ break-out last Monday and the gap was already filled the next day; the exception of course is only if Shanghai will fill the strong gap up it made last Thursday which is unlikely.
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