Shanghai- Another test ...

The Shanghai's SSECI may test its medium-term uptrend line at 3,700-3,750 today. Technically speaking, an uptrend line is likely to hold & provide the staging area for a recovery. SSECI has however exhibited some weaknesses that are worth noting. Firstly, on its recent test of the uptrend line in early June, the SSECI's uptrend line was violated before recovery. Secondly, the rebounce that followed failed to make a new 'high'. Finally, the MACD & Stochastics are both showing bearish divergence. This divergence is noticeable in April to May period, where both MACD & Stochastics were not making new 'highs' while the index was inching higher. And, again this can be seen now as both MACD & Stochastics are inching lower while the index has yet to surpass the early June low.

A break of the medium-term uptrend line support at 3,700-3,750 could lead to the consolidation of the overheated Shanghai stock market.



Chart: SSECI's daily chart as at July 4 (courtesy of Yahoo Finance)