Ping Pong Technical Diplomacy

For nearly two years I have written about the grueling but expected consolidation in the Shanghai Composite. After all, when you have a historic run up and then crash like we saw last decade, you can expect tons of sideways action after the initial bear market bottom rally. In particular, I have consistently mentioned 2,300 on the Shanghai as the price level to observe, given the amount of price memory there both as prior resistance and now support. As you can see below on the weekly chart, there has been no resolution one way or the other from the long consolidation. Moreover, 2,300 is acting as a price magnet as the support trendline in that massive descending triangle I had been observing.

There are plenty of arguments out there as to whether China is destined for a “hard landing” with its recent economic deterioration versus a mere mild soft patch. I suspect that continuing to look at the Shanghai for clues is the way to go. Thus far, the mainland market has yet to tip its hand. A decisive break below 2,300, rather than the mere shakeouts we have seen so far, would point to the hard landing scenario, while chugging along in the massive consolidation probably indicates that the 2008 crash had sufficiently priced in several years ahead of slowing growth. I tend to favor the latter scenario, as far as the Shanghai market is concerned, but will let price be the ultimate arbiter.

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