On August 23, 2015, we said the following:
“The next move in the price to the downside should confirm the downside move or indicate the ongoing battle between buyers and sellers. The point indicated as the critical support will reveal the overall short-term direction of the index. Although the move up or down is academic, it is the size of the move that will be most fascinating as we believe it will be massive.”
So far, the Shanghai Composite Index (SSE) has confirmed that the direction of the index is down, now it is only a matter of magnitude. Already the Shanghai Composite Index has reached the mid-range downside target of 2,867.34.
A large bounce at this level is hoped for as a continuation of the declining trend could spark a genuine panic. If an upside bounce were to occur at this level, the SSE would face resistance at the ascending conservative downside target of 4,012.56. It would be a +48% rise to the 4,400 ascending conservative downside target from the close of August 25, 2015.
The flip side of a reversal to the upside is a decline to the extreme downside target of 1,722.12. Our breakdown of the potential reversal points are as follows:
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2,450
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2,100
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1,722
The actions of the Chinese government have not been constructive for a change in the declining trend of the market. The sooner restrictions intended to stop prices from falling are lifted the better the chance for Chinese stocks to fully recover. The more involved the government becomes in the stock market the more we believe that 1,722 on the SSE is likely to occur.