China50’s bull run stopped at the pre-2008 crisis level of 16500 on July 05. Bulls ceased buying following a rejection at the median regression of the upper zone of the ascending channel starting Jan ’18.
The weekly price action is still positive above 14930, however, since Tue the July 07 momentum started fading. Thursday’s reversal candlestick tempts investors to revisit the weekly open.
A break of the median regression of the long-term channel will be a warning for further weakness towards the median regression of the lower zone near 13440. This is the 61.80% Fibonacci retracement of the upside leg from the 11550 support.
With no strong bearish signals, however, the decline could be a mere pullback only in the short-term.
The short-term ascending channel starting Mar 19 could limit shorts near the 14624-14033 region. This is between the 38.2%-50% Fibonacci retracement levels of the aforementioned upside leg.
Bears will find support at the upper regression first. Should the ~15000 median regression confluence hold, we are bound to see demand increasing.
Decreasing demand for the index though will falter confidence in the index. This could lead to deeper declines with levels outside the lower regression of the channel expected as a result. Therefore, a failure to turn up again near the 14000 round support could prove detrimental.
Failing to mean revert will likely push prices lower. The lower regression of the long-term channel could provide a backstop for shorts, otherwise, the RSI divergence will fail to form. And this will dent the possibility of more upside.