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The Shanghai Composite index has paused, but it's poised for gains

  • The Shanghai Composite index is in a bullish consolidation phase, technical analyst Daryl Guppy says
  • Momentum has reduced, but it has not failed support near 3,360
  • The longer-term upside target is near 3,640
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The Shanghai Composite index breakout has continued to pause as it develops a bullish consolidation.

The consolidation comes as the index has successfully tested and retested a support level near 3,360. The momentum of the uptrend has reduced, but it has not failed.

The consolidation remain bullish because the short-term Guppy Multiple Moving Average indicator remains well separated. The upper edge of the short term GMMA is above the resistance level near 3,360 and the lower edge of the short term GMMA is near to the 3,360 level.

There are three other bullish features that continue to suggest this uptrend will continue.

The first feature is the steady degree of wide separation in the long-term GMMA. This shows investors are also very confident about the future of the trend.

The second feature is the way the upper edge of the long-term GMMA has moved well above the resistance level near 3,290. The degree of separation in the long-term GMMA also remains steady.

The third feature is the steady degree of separation between the long-term and short-term group of averages. These are all bullish features that confirm the index has a stable uptrend.

Investors will watch for the lower edger of the long-term GMMA to move above 3,290. This will add extra support features for the trend.

The first upside target was near 3,360 and this has already been achieved and has been successfully tested as a support level. The longer-term upside target is near 3,640. This is a previous long-term resistance level created in November 2015 and January 2016.

The uptrend breakout is confirmed and the nature of the new trend is developing.

This is a steady, low-momentum trend in which the index is clustering around the upper edge of the short-term GMMA. Traders now watch for the market behavior as the index moves towards the next resistance target near 3,640.

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.