May’s sudden losses are in sharp contrast to the strong rally of the previous two months, both in Shanghai and in the Singapore and Tokyo wholesale markets. Five consecutive weekly declines have probably shaken many nerves in Shanghai, but we feel that prices are approaching very long-term historical support. Slippage may not stop suddenly, but already we are seeing small signs that the move might be slowing. Bearish momentum is no longer increasing and we are very oversold. Interestingly, the long-term 50- and 200-day moving averages still suggest a bullish stance. Watch individual candles for basing activity, with Wednesday’s hammer being a good start. A daily close clearly above 10,200 yuan per tonne would also help.
Nicole Elliott is a technical analyst