Sideways trading pattern of index expected to continue

The stock market moves in advance of the formal reports of economic activity. Thursday last week the key Purchasing Managers Index (PMI) showed a rebound in August. Other associated reports confirmed the increasing role of domestic demand in supporting economic growth and a move away from heavy reliance on foreign trade for growth.

It's a story that has already reflected in the development of the Shanghai index activity. Investors look to economic reports for confirmation of economic activity. We look to the behavior of the Shanghai index for indications about the future development of the economy.

The Shanghai Index has developed a sideways trading pattern. This is a type of consolidation band that provides the foundation for a trend breakout. The lower level of the consolidation pattern is near 2580. The upper level of the pattern is 100 index points higher near 2680. There are five bullish features in the Shanghai Index. They are:

The inverted head and shoulder pattern

The potential up trend line

The GMMA relationships

The trading band or consolidation area

The developing pattern of rally and retreat in the trend breakout