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).
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