Shanghai In Wide Trading Range

China officially became the world’s No 2 economy surpassing Japan. China has been relying on low wage cost to serve as the factory of the world to boost its exports. However the advantage of a low wage structure is diminishing and China itself is facing competition from other low wage countries.

The next chapter of expansion will depend on whether domestic consumption is able to propel the economy to greater heights. With the population in China, China’s domestic market is something that global companies cannot afford to ignore.

The Shanghai stock index is in a wide trading range between 2580 and 2680. The phase chart has been in “Recovery” phase since 22 July 2010 with the index above its 50 day moving average. The 200 day moving average is at 2900 levels and the market doesn’t look to have enough momentum to test this level just yet.

The chart pattern is still positive at this stage with the index rebounding from the low formed on 13 Aug. An inverted head and shoulder pattern has been established in the charts and this gives a target of 2740.

US Market Hanging On Tenterhooks

US market closed down 265 points on Wednesday. Bad news seems to be appearing at the same time. China reported a weaker than expected retail sales numbers and a dip in industrial production during July. The US Fed appeared to be less optimistic in the recovery and weakness is appearing in the US economy. CISCO reported revenue that fell short of analyst’s expectation after the market closed. This will put more pressure on the market.

The Dow Jones Industrial Average has now broken through the 50 day moving average and is set to test its 200 day moving average at 10,263. This will be a key level to watch for Thursday trading session.

The phase chart has made a U-turn from “Accumulation” phase. It looks likely that the index will test the 10,000 level soon.