The Shanghai index has developed a classic GMMA breakout, retreat and rebound rally pattern as the longer term index uptrend develops. The first rally in the first week of June carried the index above the value of the upper edge of the long-term GMMA.

The retreat successfully tested the lower edge of the long-term GMMA as a support level. The recent rebound rally moved above the upper edge of the long-term GMMA and confirmed the development of a longer term uptrend.

The behavior of the short-term GMMA, which reflect the thinking of traders, shows that they’re also becoming more confident. The current activity in the short-term GMMA shows wide separation and shows traders are more aggressively buying. A retreat and consolidation is a normal behavior for this type of trend breakout. This will lead to some compression in the short-term GMMA followed by an expansion as traders move into the market to take advantage of temporary lower prices.

In this type of market environment we use the ANTSYSS trade method to extract good returns from the rally and trend developments.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.

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