Tom DeMark, the influential market investor who correctly predicted the current rout in China’s stock market, believes today is a make-or-break session for the Shanghai Composite.
According to a report from Bloomberg, DeMark suggests a failure to close above the 3,200 point level on Wednesday may see the index slide to as low as 2,590 points, some 13.3% below its current trading level.
“We are teetering on the edge,” DeMark told Bloomberg, adding: “the pivot point is today.”
DeMark said that a failure to above 3,200 points, the 61.8% Fibonacci retracement from the March 2014 low through to the June 2015 peak, would confirm that the Chinese market is still following the trading pattern of the US crash during the Great Depression era.
Conversely, should the index manage to close above this key technical level, he suggests the current market rout — something that has seen the index fall over 42% in just over two months — may be over.
If it reclaims the level, it could mark the start of a 60% rally for the index. This could,in his opinion, propel stocks well above the previous multi-year high of 5178.2 struck in mid June.
While not all of his calls have been correct — no investor can lay claim to that — DeMark’s recent call on China’s stock market proved to be top notch.
On July 27 he predicted that the Shanghai Composite would decline by 14% by mid August based on trading pattern that mimicked that of the 1929 US crash stock market crash.
So what is the likelihood of the index closing above this level, and, more importantly, is China’s government paying attention?
At the mid-session break on Wednesday the Shanghai Composite sits at 2,988.76 points. If 3,200 points is to be achieved, it will require a 7.06% plus rally in just two hours of trade.
It sounds ridiculous on the surface, but given the index fell over 15% in the previous two sessions, and managed to stage a near 5% rally off the lows into the mid-session break today, it’s not beyond the realms of possibility.
In just two hours time we’ll find out the answer.
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