Chart of the day: History key to Shanghai's future

PUBLISHED : Tuesday, 16 December, 2014, 6:49am
UPDATED : Tuesday, 16 December, 2014, 9:34am

Where next for the Shanghai Composite Index is a question best answered by a look at historical performance. Over the past 20 years, a rally on the scale seen in the month leading up to the pullback tends to be followed by further falls over the subsequent month. Historically, it also has been followed by double-digit positive returns over the next three months. The liquidity impetus also argues for more medium-term gains, especially as the rally it fuelled occurred despite a downturn in economic expectations and newsflow - as measured by Absolute Strategy Research's proprietary sentiment indices. The next technical line in the sand is 3,100 points, which marks a 76 per cent Fibonacci retracement of the market's 2009-13 downtrend.

David McBain is a technical strategist at Absolute Strategy Research