The first consequence is that the strong base gives a bullish outlook because it is used for the next rally towards resistance near 3,265 and 3,290. The resistance forces in this resistance band are strong, so it is not surprising that the index will fail it the first attempt to breakout above that level.
A rally move into the narrow resistance band is bullish. A rally move above 3,290 is very bullish.
The second consequence is also related to the strength of the long-term GMMA support. If that support fails, then the market retreat will be severe. A sustained close below the value of the long-term GMMA has a downside target near 3,130. If the support level breaks, then the market can retreat very quickly. That’s the main danger in the current situation.
The Shanghai index characteristic behavior includes days of substantial volatility. The market can dip and rally in very large movements. That is normal behavior.
The important feature in the market analysis is to consider its behavior in relation to the strength of the underlying trend. When the trend is strong, then the volatility dips provide a buying opportunity.
