Tuesday, November 11, 2008

Is This The Bottom In The Shanghai Index?

The Shanghai Index is a market that I don't really trade but I do follow it from time to time. Right now I think this index is possibly forming a bottom based on several technical tools that I use.

Above is a daily chart of the Shanghai index and in the lower panel is the MACD with the standard default settings of 12,26,9. You'll notice the multiple bullish divergences that have been taking place since last May. One of the mistakes traders make is that they fail to combine their technical indicators with other tools. A trader who makes decisions based on just one indicator (in this case a MACD divergence) would have lost money trading this index over the past few months. I prefer to combine indicators as well as time frames to increase the odds of finding a winning trade.

Looking at the above daily chart we see the multiple MACD divergences which usually means at some point there is a chance this market may rally. Like I said in the previous paragraph, I need some other tools to help confirm the daily MACD divergences before I actually turn bullish on this market. In order to see the bigger picture we'll now take a look at the weekly chart.

Below is a weekly chart of the Shanghai Index along with the MACD in the lower panel. What I find significant about this chart is that the index is now sitting on a very powerful and meaningful support area. In addition to this major support area we see the weekly MACD is now about to give a buy signal. So as you can see, the pieces of the puzzle are beginning to come together. We have multiple daily divergences, the index is at a very significant support area on the weekly chart and the weekly MACD is about to give a buy signal.

Does this mean that there is a 100% chance that this market will rally because we now have all this confirmation? Of course not but the odds of making money buying this market are much greater now than they were for the trader who was trying to pick a bottom over the past few months based on using only one indicator.

Combining indicators is a very effective way to trade and increase your bottom line which is why I only take trades that have at least 2 or 3 technical tools screaming at me to make a trade. As always folks we'll see what happens.


Crush The Market! said...

I like your analysis, but I am hesitant to make predictions. Great charts!

Kevin said...

No prediction....I'm letting the market tell me what to do.

Anonymous said...

I really like your analysis. Its independent and much different that the other run of the mill bloggers out there.Keep up the good work!

Anonymous said...

Kevin, do you mean THE bottom as in "and then off to the races" or even "now it will stop plummeting at least", or do you mean A bottom as in "short term trading opportunity".

If the latter then I can see it. If the former then I strongly disagree because we are in a deflationary crash worldwide and this will not be over in 2009. Perhaps not even in 2010. It's that bad and it's what you would expect from the bursting of the biggest credit bubble of all time.


This site may include market analysis. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Trading and investing involves high levels of risk. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.
Technorati Profile Finance Blogs - Blog Top Sites