ftse china a50 weekly outlook for 31 aug to 04 sep snap back rally in progress above 8750 support 11

(Click to enlarge charts)

What happened last week

The China A50 Index (proxy for the FTSE China A50) has continued to push higher above the 8000 weekly pivotal support as China central bank, PBoC added liquidly into the financial system via a rate cut of 25 basis points on the benchmark one-year lending rate to 4.6% and reduced the required reserve ratio for state banks by 50 basis points simultaneously.

Please click on this link for a review on our previous weekly outlook.

Key elements

• Price action has rebounded from the “Black Monday”, 24 August 2015 low of 8045 which 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 3^rd  chart).
• At the end of last week, the China A50 Index has managed to form a bullish weekly “Hammer” candlestick pattern close to the 9700 long-term support. This observation suggests a potential bullish reversal near the 9700 support after a 46% decline from the June 2015 high of 14990 (see 2^nd chart).
• The broader Shanghai Composite Index has managed to have a weekly close above the lower limit of the long-term support at 3073 (see 1^st chart).
• The key medium term resistances for China A50 remains at 9700/10180 (former support zone) follow by 11480 (200-day Moving Average) (see 3^rd chart).
• The 11480 resistance also confluences with the 61.8% Fibonacci retracement of the steep down move from 09 June 2015 high to 24 August 2015 low (see 4^th chart).
• The 4 hour (short-term) Stochastic oscillator of the China A50 still has upside potential before reaching its extreme overbought level (see 4^th chart).

Key levels (1 to 3 weeks)

Pivot (key support): 8750

Resistance: 9700/10180 & 11480

Next support: 8000 & 7130

Conclusion

Technical elements are still positive which continue to advocate for a multi-week rebound in price action. We have tightened the weekly pivotal support to 8750 for a potential push up to towards the 9700/10180 zone.  Only a clear break above 10180 is likely to unleash a stronger upside momentum to target the next resistance at 11480.

On the other hand, failure to hold above the 8750 pivotal support is likely to see the continuation of multi-month bearish movement to test the 8000 level and even 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.