Shanghai Index Enters Bearish Phase

China market had a bad day yesterday. The Shanghai Index broke through its 200 day moving average, forming a long black candle. The move was triggered by the authority’s stance on controlling the property market in China. The market took the news negatively and the index closed below its 200 day moving average to end at 2980.

The phase chart has also moved to “Bearish” phase. The longer the index stays below its 200 day moving average, the more “Bearish” it gets. The best scenario for the bulls is for the index to move above its 200 day moving average in the next few trading session and for the index to move above 3200 level. However judging from yesterday’s performance, it is unlikely that such scenario will play out. It is best to take a defensive stance and to wait for a better opportunity to buy into this market.

Dow Still In Bullish Trend

Dow did not manage to break the 11000 level on Tuesday’s trading session. The index has made a significant recovery since its low on March 2009 and it is not realistic to keep going up in a straight line. Looking at the monthly chart, the Dow has made 10 white candles out of 13 trading months from March 2009 to March 2010. Hence a pullback at this point is actually healthy for the market.

Judging from the phase chart, the market is still in bullish territory. However the market is already showing some fatigue as it runs into resistance level. If the index manage to overcome the 11,000 level it is most likely be coming against a strong resistance at 11,300 level. This level coincides with the 61.8% Fibonacci retracement level.