Shanghai Composite drops in early trade, recovery rally stalls near 61.8% Fib

The Shanghai Composite is down 10 points or 0.4 percent in early trade.
The recovery rally in the index ran out of steam at 2682.89 (61.8% Fib R of Sept. 26 high/Oct. 19 low).

Omkar Godbole FXStreet Contributor

Chinese stocks are flashing red in early trade, having gained more than 220 points in the previous two trading days.

At press time, the index is trading at 2640 - down 0.4 percent in the day.

Stepping back, stocks picked up a bid on Friday after regulators said they would take necessary measured to restore investor confidence. Further, the blue-chip index rallied more than 4 percent yesterday for its best daily performance in almost three years on news that China is preparing to overhaul its income tax law for individuals.

So far, however, the risk-on rally has not translated into CNY strength. At press time, the USD/CNY is bid at 6.94 and looks set to test the major psychological hurdle of 7.00 in the near-term.

Further, the stock market rally seems to have run out of steam at the 2682 - confluence of 61.8 percent Fib retracement and 200-hour EMA.

Technical Levels

Resistance: 2,682 (61.8% Fib + 200-hour EMA), 2,743 (Oct. 10 high resistance on the hourly chart)

Support: 2,647 (support on the hourly chart), 2,600 (psychological support)

Author

Omkar Godbole

FXStreet Contributor

Omkar Godbole, editor and analyst, joined FXStreet after four years as a research analyst at several Indian brokerage companies.

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