The Shanghai exchange is showing some interesting technicals that suggest a buying opportunity might be approaching. There are some caveats that should be addressed before an investor should take a position in that market, however. Lets go over the technicals for this index to determine if and when we might consider taking a postion in Chinese stocks or index ETF’s.
The big picture above (weekly chart) shows that the Shanghai index has been in a downtrend since 2009 (green trendline). However, since 2013 the Chinese market has been forming a consolidation pattern in the form of a descending triangle. Witness the very strong and predictable flat support line at just under 2000 for the index since early 2013 – along with the very tight range of volatility that’s been present since the beginning of 2014.
It would appear that the Shanghai is trying to break out of this descending triangle – a potentially bullish sign. If you follow my work or have read my book Sideways (if you haven’t read the book – may I humbly recommend that you do so), you will know that I recommend a 3-bar breakout before acting. Thus, I’d like to see another couple of weeks of the Shanghai hanging well above 2100 before acting on this chart. A breakout through the longer termed downtrend of 2400 would be particularly bullish for longer termed investors.
Unfortunately, volume statistics are unavailable for the Shanghai chart from Stockcharts.com. Were they available, I would hope to see rising volume on the above mentioned triangle breakout. The daily chart of the iShares FTSE 25 ETF (FXI, below) does show rising moneyflow and volume to support the positve movement, along with a recent movemnt towards stronger comparative relative performance vs. the US markets (SPX). Short termed oversold momentum studies (stochastics, RSI, MACD) appear on the daily chart, indicating a small pullback may be due if we see them hook down. All in, this index, and securities related to it, should be on a technical traders radar screen as a potential trading opportunity in the coming weeks.
Articles posted on website
I’ve posted the latest of my columns from Investors Digest on my corporate website at www.valuetrend.ca. Click on the box at the bottom of the homepage. These articles are free to read without a subscription to the publications. The articles aim to provide plenty of new stock and bond ideas for investors.
Leave a Reply