There are three bullish features for the trend that are shown by the Guppy Multiple Moving Average (GMMA) indicator.
The first is the degree of separation on the short-term group of averages in blue, which shows what traders are thinking. The wide separation suggests they are bullish, aggressive buyers.
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We see the same feature in the long-term group of averages in red. The consistent wide separation is evidence of strong investor buying support for the trend. When the market pulled back in March the long-term group did not compress, which indicates strong buying support.
The third feature is the consistent degree of separation between the long-term and the short-term group of averages – a feature of a strong and stable trend.
We used the support and resistance band between 3000 and 3400 to set the upside target for the trend breakout earlier this month. We use the same method to set the next upside target for the breakout above 3800. This target level is 4200. This is a technically-calculated target and must be verified against the historical activity of the index using a monthly chart.
On the monthly chart the historical support level is near 4350. This suggests the market can move above the technical target near 4200.
The danger in the fast up move comes from the threat of a strong trend correction. Investors should watch carefully for the development of end-of-trend chart patterns including a head and shoulder pattern and rounding-top patterns.
Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders – www.guppytraders.com. He is a regular guest on CNBCAsia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.