(Nov 6): The Chinese People’s Political Consultative Conference meeting has ended, but what are the key outcomes? In the week following the conference, I was in Kunming, Guilin and Hangzhou. I had the opportunity to talk with a wide range of senior officials and friends. We should not underestimate the level of support enjoyed by President Xi Jinping, particularly in connection with the anti-corruption campaign.

The Belt and Road Initiative will fundamentally alter the economic landscape of Asia and Eastern Europe/Eurasia. The initiative is a trade bloc policy with inbuilt political tolerance for diversity. Trade is not tied to politics, but is seen as smoothing political relationships.

Our prosperity depends on our involvement in this new landscape and the regulatory structures that are defining it. The Trans-Pacific Partnership has no influence in the most dynamic and growing of markets.

China will tighten security at its borders, and enforce its territorial claims where necessary. It is a right we do not deny ourselves, or the US, but it seems to be denied to China. The South China Sea dispute arose in significant part from the repudiation of the Potsdam Agreement and its replacement with the San Francisco Peace Treaty, which was designed to bring Japan onside as an anti-Communist bulwark.

Involvement in programmes designed to thwart or contain China puts participants on the wrong side of history. We need to manage our involvement.

Much has been made of the inclusion of Xi’s economic philosophy in the Party constitution, but for the wrong reasons. The formalisation of economic strategy confirms Premier Li Keqiang’s position, the transformation of the economic foundations as well as continued stable economic growth and poverty alleviation. The inclusion is a significant victory over the economic conservatives. The dream that capitalism in China would lead inevitably to a democratic government has always been flawed. The world’s largest democracies are not replicants of US capitalism.

Countries will be at their most effective through cooperative engagement rather than continued criticism. We cannot change China’s domestic policies any more than we can change those of the US. However, with better engagement, we can ameliorate policy impacts.

The Shanghai Index has developed a habit of regularly testing the support strength of the long-term group of averages in the Guppy Multiple Moving Average (GMMA) indicator. Every month, there is a sudden retreat that then rebounds from the group of averages.

The long-term group of averages is a guide to the strength and commitment of investors. The wider the separation, the stronger the commitment. The lack of reaction compression with the index retreats shows that investors remain confident about trend strength. This shows they are buyers at points of temporary trend weakness.

These volatility dips show trading activity, but they do not show trend weakness.

The Shanghai Index continues to oscillate around its long-term historical resistance near 3,360. This week, the index used this mid-point level of 3,360 as a support level for the rapid rebound following the sharp fall on Oct 30. Although this is volatile trading activity, it takes place within the environment of a slower-moving, steady continuation of the longer-term uptrend, and this is very bullish.

The index has rebounded from two support features. The first is the centre line of the consolidation trading band near 3,360. The second is the upper edge of the long-term GMMA. The continued wide separation in the long-term GMMA shows strong investor confidence in the continuation of the uptrend.

This separation remains around 36 points, which is the same as the 36-point separation for the past three weeks. This consistency in the degree of separation also confirms steady, good trend strength.

There are five aspects to the bullish GMMA analysis and trend rebound.

The first feature is the steady degree of wide separation in the long-term GMMA. The current degree of separation indicates a steady and sustainable uptrend.

The second feature is the way the upper edge of the long-term GMMA has moved above the historical resistance near 3,360.

The third feature is the continued rise of the lower edge of the long-term GMMA above the resistance level near 3,290.

The fourth feature is the recent steady separation between the short- and long-term groups of moving averages. Steady separation between the groups confirms trend strength.

The fifth feature is the low degree of expansion and compression in the short-term GMMA. This shows a decrease in trading activity. It shows traders are becoming more confident about the strength of the trend, so they are not taking short-term rally profits.

The longer-term upside target is near 3,640. This was a previous long-term resistance level created in November 2015 and January 2016.

https://edgemarkets.s3-ap-southeast-1.amazonaws.com/s3fs-public/guppy.JPG

Daryl Guppy is an international financial technical analysis expert and special consultant to AxiCorp. He has provided weekly Shanghai Index analysis for mainland Chinese media for more than a decade. Guppy appears regularly on CNBC Asia and is known as ‘The Chart Man’. He is a national board member of the Australia China Business Council.

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