One issue that keeps resurrecting itself is that of the economic slowdown facing the Chinese economy that has been a hot topic for a while now which seemingly picked up pace at the start of January with the government's lack of communication over whether it would be lifting the ban on large shareholders to dispose of their holding. This led to a frantic selloff that triggered newly installed circuit breakers that were enforced to prevent volatile swings however caused more damage than its intended purpose.
The pickup in volatility spread quickly throughout the global financial system and it was emergency stations for many who tried desperately to save themselves for the despair brought on so early into the trading calendar.
Calm was only restored in late January when policymakers from across the globe began to mesmerize the markets with their confidence trickery and abate the inevitable from coming to fruition. Although order seems to be in play at present there's an air of concern as to when the next round of violent volatility may strike again.
Over the next two weeks I will be charting both the CSI 300 and Shanghai Composite Index on account that I believe these two indexes will be pivotal in deciphering where global markets may be headed too this year.
CSI 300
The index is relatively new with tracking starting on the 8th April 2005 making it susceptible to not exhibiting distinguishable secular trends that set the tone of the trend over the next decade. The index is made up of components both listed on the Shanghai and Shenzhen stock exchanges with the former having the most constituents on the index making up almost 70%.
There's been much focus on the index of late after returning subpar performance up until the Chinese stock regulator freed up the space and allowed more people to be able to participate in the stock exchange which caused a surge in brokers offering handsome returns at a fraction of investment thus creating a bubble in the system. Let's see what the charts have to say;
Monthly
The index started with a base value of 1000 on the 8th April 2005 with the price taking a while before it found any momentum. Once it did the sky was the limit and we saw an impressive rally into all time highs. In 2007 alone the index was able to return 2.5 times its value in 12 months which is a phenomenal performance by any standard.
The Financial Crisis set in and as fast as things went up was as quickly as they came down followed by a bounce that was bold but not enough to found sufficient substance to form anything distinct. The end result was a morbid downtrend that remained in place for five years with little technicals to work off. This was only resolved when the Chinese stock regulator decided to liberate the market by allowing more people to participate and setting the trend higher.
However it was evident from the onset that something was amiss with the recent renewal of the trend higher being questioned by reports coming out saying that family fortunes were being staked in the belief that they could be grown bigger in a relatively short period of time. This worrying shift caused a new level of uncertainty creeping into global markets as traders and investors realised that this trend was unsustainable and it was only a matter of time before the bubble popped.
The first signs that chaos was about to descend into financial market can be seen indicated by the circle situated on the right hand side of the chart, the signal being the red candle. The price managed to climb higher than the previous month's high and set fresh highs last seen in years however reality checked in and caught up with this runaway train by sinking the price down dramatically to two month lows in a few trading days followed by a strong bounce.
Proceeding this was another two months of large ranged red candles that eventually found support around the 3000 level. The bounce that materialises does so but with less vigour that is needed to reassert bullish sentiment suggesting that the bears have full control of the direction from here onwards.
This is again reinforced by the long red candle that has been formed last month that spanned past all the lows in the four months preceding it. The formation that is now in play is that of an inverted cup and handle with a 50% downside target in place!!! If we were to expect this move to happen and round off support to roughly 3000 that would mean we could see 1500 which would take us past the lows made in 2008/09.
How quickly can this happen? Judging by a similar pattern formed on the RSI does indicate that momentum is leaning downwards and the speed at which we've seen things could pick up very fast so a word of warning is needed if you are contemplating trading this index.
Weekly
I decided to use the weekly chart to highlight how prominent the inverted cup and handle is to historical levels and you can see that it sticks out very clearly amongst the past three years worth of price data. Before it had formed there hadn't been much to talk about with the price stuck oscillating in a directionless manner.
In the blue square I've drawn two circles that indicate where the moving averages lie in relation to the price. The top circle is the 50 SMA while the bottom the 200 SMA. Price is currently trapped between these two moving averages which would suggest that we could see a degree of consolidation occur before we get the next move down however if we were to see price lose the 200 SMA then expect to experience a sudden drop in altitude.
The only positive I see is the stochastic laying in the oversold area and starting to turn upwards but if you consider the amount of bearish signals compared to those that are bullish, the seller's clearly win.
That concludes another edition of Travelling Technicals, be sure to catch up next week as I chart the more followed Shanghai Composite Index. If you have any questions I'll gladly answer them for you if you contact me by email at cadetrader@gmail.com. I always appreciate your feedback so I'm looking forward to hearing from you.
If you're looking for more info on this index you can visit China Securities Index Co by following the link
No comments :
Post a Comment