How to follow the trends in equity markets

The Shanghai index turned dramatically down on March 6. This was the first significant retreat since the Shanghai index upward trend breakout started on January 6. The breakout was confirmed on Feb 8 when the index moved above the long-term downward trend line. The nature and behavior of this retreat sets the environment for the long-term sustainability of the upward trend.

A breakout from the downward trend does not automatically determine the nature of the new upward trend. Upward trend behavior has four potential behaviors - rally, extended rally, long-term trend or parabolic trend.

The key distinguishing feature of a rally is the way price continues to move upward without any significant retreat. Most times a rally continues for a short time - perhaps 10 to 15 trading days.