The Shanghai index has come under intense pressure as concerns about the Chinese and global economy continued. The index crashed to a low of 3,204 yuan, which was the lowest level since September 5. It has crashed by about 11% this year, meaning that it has outperformed US indices like the Dow Jones and Nasdaq 100.
The Shanghai index is one of the biggest indices globally. It tracks some of the biggest companies in China such as ICBC, China Agricultural Bank, and Bank of China among others. The index, like its global counterparts, has come under intense pressure lately as worries about the economy continue. Recent data showed that China’s exports moderated slightly in July while growth has stalled.
The Chinese economy is having to deal with an ongoing drought, lockdowns in key cities, and an extremely strong US dollar. A strong dollar affects demand from international buyers. At the same time, the Chinese yuan has crashed to the lowest level this year. A weak yuan is beneficial to some companies in the index that focus more on exports.
The Shanghai index has also crashed because of the rising risks that the Federal Reserve will continue hiking interest rates in the coming months. Inflation data published this week hinted that the Federal Reserve will deliver a giant rate hike next week. Other reasons are the ongoing drought in China and geopolitical risks.
Shanghai index forecast
The daily chart shows that the Shanghai index has been under intense pressure in the past few days. In this period, the index has fallen from a high of 3,425 in July to the current 3,204. Along the way, it has moved below the 25-day and 50-day moving averages. The index has also formed an inverted head and shoulders pattern, which is a bullish sign.
Therefore, while the overall trend is bearish, a bullish breakout cannot be ruled out due to the inverted head and shoulders pattern. If this happens, the next key resistance level to watch will be at 3,300. A drop below the support at 3,150 will invalidate the bullish view.
