Do you like roller coasters? If you do—are you more of the big climb, big fall type of rider—or do you like them a bit more mild in gravitational variance?
The reason I ask: if you like the big climb, big fall variety of roller coaster, the Shanghai stock exchange may be just the investment vehicle for you!
So step right up, folks, and consider a ride on the SSEC (Which I like to think stands for Super Sharp Escalations and Crashes!). Here’s a ride guide that may give you an idea of how your trip will feel:
Below is a weekly chart showing you the fun SSEC riders have had since 2014. As you’ll see, after a breakout in mid-2014, the SSEC performed its famous Super Sharp Escalation pattern. Excited and satisfied riders were thrilled to watch their money more than double in less than a year. Does it get any more exciting than that???
But wait- there’s more! Riders who didn’t step off the train onto the top platform (provided for your convenience, and safety) were shocked and amazed as they lost some 40% of their peak value.
Not being much of a thrills and chills kinda guy, I chose to exit on the platform as the train began to round over back in April. It was interesting seeing how many of the ride’s patrons stayed on board. A few may have experienced nausea on the way down – but that’s part of the thrill of being a “ride and hold” investor.
The train looks to be slowing right now as it approaches another enter and exit platform. As green-faced patrons who chose to stay on the train are exiting their cars, it looks like there are a few seats available for a possible ride up again.
To break from the roller-coaster parallel: The China Optix (sentimentrader.com) is coming off of a sentiment low – which is a bullish sign. The Optimism Index (Optix) for countries is based on trading in the main ETF(s) available for individual countries, or aggregates like Emerging Markets.
This data includes:
- Trading activity in put options versus call options
- Future volatility expectations
- Average discount of the fund to its NAV
- Average daily fund flow
- Price behavior
Below you can see the daily chart. The shorter termed indicators such as Stochastics and RSI (first two panes below the price chart) are overbought, and may present a case for some short termed downside. Thereafter, the longer termed indicators such as MACD (bottom pane) and – very importantly, the relative strength vs. the S&P500 (second pane from bottom) may be indicating a bullish case going forward. A break through 3600 will target 4100. From there, a break of that level would target anywhere around 5000.
However, the problem with those projections are the shrinking fundamentals in China (slowing growth) and the fact that the prior levels were reached in an environment of speculation. As such, my suggestion is to treat this trade as a trade, not as a trend. Further – I’d probably focus on an ETF that focuses on “A” shares such as the BMO ZCH or similar instrument, should you consider boarding the train.
Special BNN show with Keith Richards this Thursday 6:00pm
Despite the fact that I was just recently on BNN, I’ve been invited to participate in a special week of top BNN MarketCall guests this week. The entire week is featuring MarketCall’s most popular guests . I feel privileged to be participating in the event, given the high quality of all of the guests that go on the show. My appearance is for this Thursday November 19th at 6:00pm. Be sure to mark this one in your calendar.
Call in with questions during the show’s live taping between 6:00 and 7:00 pm. The toll free number for questions is 1 855 326 6266. You can also email questions ahead of time to [email protected] – it’s important that you specify they are for me.