Third Major Leg Down Ahead For Shanghai Index?

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You can see my original post of July 8th and four subsequent updates covering China’s Shanghai Index here for background information.

In my last update of September 8th, I noted that a bearish moving average Death Cross had formed on the Daily chart and price closed at 3170.45. Since that date, price moved sideways for over a month before it, finally, rallied to where it closed today (Tuesday) at 3604.80.

I have the following observations on the 2-year Daily chart below:

  • both gaps down in August have now been filled
  • a bearish Head & Shoulders has formed on the MACD Histogram, hinting of weakness ahead
  • price is approaching a triple confluence major resistance level around 3750 (comprised of the 200 MA, major downtrend line, and a 40% Fibonacci retracement level)
  • a re-test of a 200 MA is not uncommon after a Death Cross has formed and price usually drops  afterwards, often to new lows

I wouldn’t be surprised to see some major selling come in sometime soon on this index to, possibly, take price down to around 2500, or lower (what would be Wave 5 for Elliott Wave enthusiasts).