Why China’s Stock Market May Be Setting Up For Another Big Move
While China’s stock market crash was one of the main sources of global volatility in the summer, it has taken a back seat to other worries after a relatively calm September. Due to extensive measures to support the market, China’s regulators and central bank have managed to stave off a more extreme sell-off – at least for now. From a technical analysis standpoint, however, it appears that China’s stock market is forming consolidation patterns that likely indicate another sharp move ahead.
The benchmark Shanghai Composite Index broke down from a triangle consolidation pattern last month, which foreshadowed the steep sell-off that spooked global financial markets. A similar pattern (a wedge) has been forming since late-August; the ultimate resolution of this pattern is likely to result in another notable move in the direction of the breakout. In addition, the uptrend line that started in July 2014 is an important support and resistance level to watch. If this pattern breaks convincingly to the downside, another wave of global market volatility should be expected.
Source: Stockcharts.com
The Dow Jones Shenzhen Index fell beneath its uptrend line during the August crash and has been consolidating ever since. Like the Shanghai Composite, the Shenzhen Index has been forming a wedge pattern that should indicate another directional move when a breakout occurs.
Source: Forbes – Why China’s Stock Market May Be Setting Up For Another Big Move
