An interest rate cut from the People's Bank of China on Friday spurred a global stock rally and charts suggest the move will further boost an already-strong uptrend in the Shanghai Composite index.
The People's Bank of China cut the one-year benchmark lending rate by 40 basis points to 5.6 percent on Friday and lowered the one-year benchmark deposit rate by 25 basis points to 2.75 percent in an effort to support the slowing economy.
On the weekly chart, the Shanghai Composite recently pulled back to trade between trend lines C and D and then rallied above trend line D. The strong rally above trend line D shows exceptional trend strength.
The uptrend breakout started as a typhoon flag pattern and then developed into a pattern of trading channels defined by up-sloping trend lines. The width of the lower trading channel between trend lines A and B was measured and projected upwards to set the location of trend line C. This same method was applied to set the location of trend line D. The distance between trend lines A and C was measured and projected above the value of trend line C, creating a third and higher trading channel, trend line D.