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Op-Ed: The Shanghai index is poised to head higher

The Shanghai index quickly recovered from large volatility moves earlier in July, and the trend strength has continued as the index achieved upside targets near 3,265.

The trend strength is defined by the long-term group of average in the Guppy Multiple Moving Average Indicator. The recent volatility proved the strength of the uptrend as shown by the long-term GMMA. This proved to be a solid support feature and the long-term GMMA continues to remain well separated, showing good investor support for a continuation of the uptrend and a move above 3,265.

Investors watch for consolidation around the 3,265 level, but that is in preparation for a further uptrend development with a target near 3,335.

That level is calculated by projecting the width of the trading band above 3,265. The Shanghai index trades in consistent trading bands with a width of around 70 index points. Those trading bands act as support and resistance levels. The width of the trading band is used to calculate upside and downside targets.

The continued expansion in the long-term GMMA supports the conclusion, and the behavior of the short-term GMMA also suggests continuation of the uptrend.

The short-term GMMA provides information about the thinking of traders, and so the wide separation shows traders are confident about the uptrend.

There are two support features for the uptrend. The first feature is the lower edge of the long-term GMMA near 3,180. The second feature is the support from the upper edge of the long-term GMMA. That is near 3,200, which is above the lower edge of the consolidation activity that developed when the index first tested the 3,195 resistance level.

The long-term GMMA has turned upwards and is developing separation of around 18 index points, up from 11 index points last week. The steady expansion of the long-term GMMA group of averages confirms strong investor confidence in the new uptrend.

There are two GMMA uptrend confirmation signals. The first signal is when the value of the upper edge of the short-term GMMA moves above 3,195. That has developed. The second confirmation signal is when the lower edge of the long-term GMMA moves above the 3,195 level.

Investors watch for consolidation behavior around 3,265. A sustained breakout above the 3,265 to 3,285 level is very bullish because that is also a breakout above a long-term triple top pattern that started in 2016. This is a strong and well developed uptrend with good short-term support near 3,220. In that type of strong trend, any volatility dips in the index are a buying opportunity.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders, which can be found at www.guppytraders.com. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe. He is a special consultant to AxiCorp.