ftse china a50 weekly outlook for 24 aug to 28 aug potential snap back rally above 8000 support 1115

(Click to enlarge charts)

What happened earlier

The China A50 Index (proxy for the FTSE China A50) has failed to break above the 11480 upside trigger level and continued to tumble and it is now challenging the lower limit of the key long-term support at 9700. Since the June 2015 high of 14990, the Index has recorded a horrendous decline of 45%

*The long-term support of 9700 is being derived from the weekly chart, thus we need to have a weekly close below 9700 in order to validate a further bearish movement.

Key elements

• Since the June 2015 high of 14990, the Index has recorded a horrendous decline of 45% and the yesterday low of 8045 has confluence closely with a Fibonacci cluster at 8000 (76.4% Fibonacci retracement from 20 March 2014 low to 09 June 2015 high + 1.00 Fibonacci projection from 09 June 2015 high and 10 July 2015 high) (see daily chart).
• The intermediate term RSI is oversold but it is still below its 50% neutrality level and resistances (see daily chart).
• The key medium term resistances stands at 9700/10180 (former support zone) follow by 11480 (50 & 200-day Moving Averages) (see daily chart).
• The short-term Stochastic oscillator has flashed a bullish divergence signal and exited from the oversold region. This observation suggests that bullish momentum has resurfaced and a potential “snap-back” rally is likely to occur after a steep decline seen last week (see 4 hour chart).
• The broader Shanghai Composite Index has tumbled by 41% from its 5178 high printed on June 2015. Interestingly, it is still holding above the lower limit of the long-term support at 3073. Its corresponding long-term RSI oscillator has retraced and it is now on its long-term trendline support (see first chart).

Key levels (1 to 3 weeks)

Pivot (key support): 8000

Resistance: 9700 & 10180

Next support: 7130

Conclusion

Current technical elements and intra-market correlation are advocating for a potential “snap-back” rally above the 8000 weekly pivotal support towards 9700 and even 10180.

On the contrary, failure to hold above the 8000 pivotal support is likely to see the continuation of the waterslide to target the mega long-term trendline support in place since May 2005 at 7130.

Source:  Charts are from eSignal & City Index Advantage Trader

Disclaimer

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this email, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs. All queries regarding the contents of this material are to be directed to City Index, a trading name of GAIN Capital Singapore Pte Ltd.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.