After the Bounce

The carnage witnessed within global stock-markets over the past few months has dissipated, allowing for a reasonable bounce, albeit with continued high volatility.

So is that it, is the correction over?

As always we look to the charts for guidance and being as most market “experts” have blamed it all on China, let us start with a daily chart of the Shanghai Composite, China’s flagship stock-index, since the  June 2013 low to date.

 27 August 15 blog

Bear markets are always quicker than their bull counterpart, as can be seen here, with the index taking a mere 3-month to wipe out 18-months of gains.

Using a Fibonacci retracement, not shown, we should see a bounce towards the 3600-3800 level for the SH Comp, which coincides with the 200 MA and 50 MA. This would be a decent 15% to 25% bounce expected.

But before looking at possible targets after the bounce, let us negate the myth that this is all about China by a look at the second chart:

27 August 15 blog 2

China only represents about 8% of the World Stock Index, with the lion’s share dominated by America, and as can be noted above, the world index peaked in May 2015, a full month ahead of the SH Comp.

Furthermore, its 50 MA has crossed below the 200 MA, known as a “death cross,” which usually signals a change in a long term trend, in this case from up to down.

The Fibonacci retracement numbers have been included here and compared with China it suggests a more modest 5% to 10% bounce.

After that, unless the respective stock-indices can regain their MAs, with the 50 above the 200, the trip lower will continue.

As to those lower targets, you may wish to subscribe to our very modestly priced investmentimer service.

 

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2 responses to this post.

  1. […] and Hong Kong stock-indices and then, following the initial crash, an August piece entitled “After the Bounce” which suggested a possible 15% to 25% bounce towards 3600-3800 for the SH Comp and a 5% to 10% […]

    Reply

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