China Stock Rally May Falter at 3,000 Level: Technical Analysis

China’s stock rally may falter as the Shanghai Composite Index faces “risk” at the 3,000-level, according to Chart Partners Group Ltd.

“Looking forward over a medium-term to long-term horizon, China must break above and stay above 3,000 in order to turn the macro cycle bullish,” said Thomas Schroeder, managing director at Chart Partners in Bangkok. “Otherwise this rally is simply a range move that would fail under 3,000.”

The Shanghai Composite, which tracks the larger of the nation’s stock exchanges, rose 1.4 percent to 2,902.072 at 10:17 a.m. local time, having climbed 23 percent from its July 5 low. The gauge has jumped 9.7 percent since the end of a weeklong holiday this month and on Oct. 12 crossed its 200-day moving average. The measure may decline later this week, returning below the indicator, according to Schroeder.

“Price action very often fluctuates above and below such levels,” Schroeder wrote in an e-mailed response to questions by Bloomberg News. “The real test comes from sustained action above the 200-day moving average. More than likely, we will see the sharp rise stall very soon.”

Schroeder is more cautious than Schaeffer’s Investment Research, who said this week the break above the 200-day moving average is a “positive sign” that signals further gains for the Shanghai Composite. Technical analysts at Nomura Holdings Inc. and CIMB Investment Bank Bhd. also said this week the index may extend gains after surpassing resistance levels.

In technical analysis, investors and analysts study charts of trading patterns and prices to predict changes in a security.

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