China's Shanghai Index Rejected At Major Resistance
Candy Matheson | May 06, 2019 03:28PM ET
I last wrote about China's Shanghai Composite index (SSEC) on March 25 , at which time I identified 3150 as major resistance. Price had closed at 3043.03 that day.
Since then, price briefly broke above 3150 to hit a high of 3288.45 on April 8, and, after retesting that level several times over the next few days, it finally broke and closed below on April 25. In Sunday's overnight trading it closed today (Monday) at 2906.46.
Monday's losses occurred after two tweets Sunday night by President Trump regarding trade and tariffs, as noted below. The third tweet was posted today.
Today was another bad Monday (to put it mildly) for Asian markets, as noted below (screen shot taken at 1:30 pm EDT)...(source Indexq.org)
In my above post, I said the following regarding the SSEC:
I've shown the input values of the momentum (MOM) and rate-of-change (ROC) indicators as one period. They're both still below the zero level and have, in fact, been declining on recent attempts to move higher during March.
If price breaks and holds above, say, 3150, I'd like to see both of these indicators also break and hold above zero, while making new highs, as well, to confirm the sustainability of any further meaningful advancement beyond that price.
Otherwise, look for this index to retest its last weekly swing low, or plunge lower, inasmuch as its stability at current levels is questionable.
From the following updated weekly chart of SSEC, both the MOM and ROC indicators (shown with an input value of one period) failed to make a new swing high as price made its new swing high on April 8, and they've been declining ever since, to end back in negative territory...hinting of further weakness ahead.
Major support sits at 2500. Whether it hits that level, or plunges lower, may depend on future unpredictable Trump tweets (which have ranged from extreme optimism on a trade deal, to these latest threats), or on other internal Chinese factors, or other external world events (e.g. tensions/events involving North Korea, Iran, Israel/Palestinians, Venezuela/Russia/Cuba, etc.).
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My thoughts outlined in my May 4 post , "I think that U.S. equities and bonds will continue to outperform the rest of the world markets," haven't changed, although we may see some increased volatility and deeper pullbacks over the coming weeks/months than I may have anticipated.
As the S&P 500 index (SPX) made its new all-time high of 2954.13 on May 1, its corresponding SPX:VIX ratio was not corroborating that strength. As of 2:19 pm EDT today, this ratio had dropped to its 200-day moving average, after it began its decent when it peaked in mid-April. A drop and hold below this moving average (say, 180) could see the SPX plunge much lower (watch for a break and hold below near-term support at 2900) as the SPX:VIX ratio drops to, potentially, 100, or lower.
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