Top pick for the day - China’s Shanghai Comp

A sharp pullback is likely


China Shanghai’s Composite Index (SHCOMP) looks stretched and appears to be at the beginning of a correction phase

Prices quickly reversed after failing to move beyond a key resistance trend line from the Nov-Dec highs (see right chart). 

There was also a false breakout or throwover as prices failed to sustain above the 4986 high following yesterday’s selloff

The negative divergence on its momentum indicators supports the view that a correction may be taking place now

If prices close near or at current levels, the weekly chart would also show a bearish engulfing pattern i.e. a reversal may be taking place here. As long as prices stay below 5178, we expect the SHCOMP to fall to test its support trend line at 4,650-4,670 next. 

Longer term, if the correction view holds, prices could at least retest 4,099, the lows seen in early May

Sentiment in China is at an extreme and this pullback would likely defuse all or part of this extreme sentiment. 

Look out below – well in the short term at least. (Read Report)

Source : CIMB Research

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