“Oiling the Wheels for China”

The main China stock-index, the Shanghai Composite, soared by 54% over the year to 17th February when it closed for the one week Lunar New Year holiday. The Chinese markets, including the SHcomp re-open on Wednesday 25th February with many wondering if the run can continue, particularly in view of the deteriorating economic back-drop. Aside of the rapidly slowing housing market and retail sales concerns, worries are rising in respect of the over capacity and waning profits evident within the industrial sector.

So what’s an investor to do?

As always we look to the charts for guidance and we’ll keep it brief.

24 Feb 2015 Blog 1

First up is a one-year daily chart of the SH Comp to the 17th February close, which includes the 50-day moving average and the longer term 200-day version. Kindly note that whilst the index remains above both MAs, which is bullish, it is looking somewhat stretched against the 200-day, at 20% above it.

Note also that our proprietary indicator peaked on the 7th January, followed by the nominal SH Comp on the 23rd January, which suggested a corrective period before any further gains. This period may or may not have finished so what other guidance can we glean?

24 Feb 2015 Blog 2

We note an interesting negative-correlation between the SH Comp and the Oil price, better observed by showing the crude oil price inverted.

After the 50% slump in the price of Oil during the second half of 2014 analysts are expecting a period of consolidation, with crude perhaps rallying towards the $70 a barrel level from the near $US44 low of the 28th January 2015.

As chartists we like to use tools such as “Fibonacci Retracement-levels,” for guidance, where one can note the 38.2% retracement, a typical corrective level, suggest about $70 for crude which equates to 2850 ish for the Shanghai Composite, a possible 13% correction from its close of the 17th February.

We note a similar non-correlation for Japan’s Nikkei so in conclusion would suggest that if you want to know what’s next for the East, look West and in particular at the Texas-light.

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2 responses to this post.

  1. […] about a month ago in “Oiling the Wheels for China” that we expressed some short term concerns in respect of China’s main stock-index, the […]

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  2. […] recent posts, “Oiling the Wheels for China” and “Shanghai Socionomics,”expressed concerns over its main stock-index, the Shanghai […]

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