SSECI broke through the horizontal support of 2600

The Shanghai stock market may continue to trend lower this week. This came before today's report issued by the statistics bureau, which states that consumer prices have risen by 6.3% in July from a year earlier as food costs eased, after a 7.1% gain in June. With the inflation growing at the slowest pace in 10 months, the Chinese government has more room to restrain the yuan's advance and bolster economic growth.

Yesterday, the SSECI broke its immediate horizontal support of 2570-2600. The SSECI may drop to 2000-2200 level before any technical support may kick in. The really strong horizontal support will be at 1750 level (see Chart 1 & 2 below).


Chart 1: SSECI's daily chart for 3-year to August 11th (source: Stockcharts.com)



Chart 2: SSECI's daily chart for 8-year to August 8th (source: Yahoo Finance)

SSECI, which rose from a low of 1000 points in mid-2005 to hit a high of 6000 in late-2007, has now given back 70% of the 5000 points chalked up in the 2005-7 Bull run. Could the Chinese stomach this level of losses? Is this a sign that there maybe trouble ahead for the Chinese economy?