Shanghai Stock Index – Point And Figure Analysis

March 16, 2016

Note the descending triple bottom breakdown on January 26th. The last time this happened was in 2008…but at that time the index was far above its rising trend line. Now the trend line offers “some” support at 2530 but this level is likely to be penetrated on the downside as the central authorities fail in their attempts to “control” the Primary Trend.

3% X 3 Box Reversal.

This chart has a more sensitive scale that is probably more reflective of medium term investor sentiment. It has shown two breaks below rising trend lines and is now resting on the most recent rising trend line. If it breaks below 2537 the consequences will likely be extremely serious

Traditional Scale (1 unit X 3 box reversal).

The short term trend is clearly bearish but there is still some room for backing and filling. The Index will need to rise above 3300 (a break up back above the H&S neckline that we have spoken about earlier). If I had to guess, I would guess that the Central Authorities will attempt to get the index to rise above 2900 (to 2950) and that this event will represent a technical “false” buy signal – similar to those highlighted in yellow. These false signals typically manifest as a consequence of investor attempts to “buck” the Primary Trend (up or down) – which is why it’s so critically important to read the Primary Trend.

 

That we are (technically speaking) perilously close to a market top in the US is evidenced by the chart below that shows the percentage of Dow Jones stocks above their 200-day moving averages. 70% is typically a sign of too much bullishness

And here is a P&F chart of the Advance/Decline Line (percentage)

Note that it bats around between 0% and 100% and is currently around 86%.

Conclusion

Traders will probably make a short-term profit by buying put options or selling short

Post Script

The 3% X 3 Box reversal chart of the gold price shows a medium term buy signal with a target price of $1780

However, the more sensitive scale chart shows that the gold price might get sucked into the downdraft before it starts to rise again. The short term target is $1170, but that level will be resting on the short term trend line and will also be above the long term trend line

Overall Conclusion

Stressful times ahead as it becomes transparent that Central Banks cannot be part of the solution…given that the Central Banks have largely caused the problems facing the global economy.

Author Comment

The emerging Artificial Intelligence (A-I) era will be a game changer. “Growth” (increases in per capita GDP) is no longer an appropriate aspiration. Standards of livening will rise because A-I will facilitate higher efficiencies in energy and raw material resource utilisations. Unfortunately there will likely be upwards of a decade of “muddle through” as the excesses of the tail end of the Industrial Revolution are washed out.

China is poised to become world's biggest gold consumer.