Compelling China Stock Market Charts

By: Mike_Paulenoff

In our video charts this week we cover a range of market topics beginning with August's historical event risk and moving on to bonds and deflation (minutes 6:31 to 12:30), the S&P 500 and DXY (12:31 to 19:25), and gold and silver (19:26 to 27:36). The big opportunity described this week is China (27:37 to 38:54), with the last part of the video dedicated to Australia (38:55 to 45:00), which could benefit from the China move.

Let’s take a look at China where some very interesting things seem to be happening. Beginning with the Shanghai Composite Index (SHCOMP), it had a July low of 2335 and closed at 2637, a banner month. It closed the month above its upturned 20-day moving average and upturned 50, and the 200 is flattening out way up at the 2955 level.

Keep in mind, the Shanghai peaked in August 2009 and has been going down for almost a year. There’s a pretty good chance that the last move down completed the entire correction. If so, then the Shanghai is about to take off.

On the weekly chart, the longer-term situation shows that the Shanghai had an upleg from late 2008, finished its correction a year ago about two-thirds of the way back, and now it’s ready to take off. Certainly, the weekly oscillators are telling me that something is going on that's very powerful in the Shanghai Composite.

My last posting on the site on Friday was a candlestick chart of the monthly, which is a pretty exciting chart from a big-picture perspective. On the bar chart basis, the key upside reversal that occurred looks like it has finished something and it's going to make a run on the upside. If that happens, it's probably going to be very positive for both Chinese stocks as well as some of the U.S. stocks.

Looking at the iShares FTSE Xinhaua China 52 Index Fund (FXI), it looks better than the Shanghai. It didn't have quite as steep of a decline. It did peak in November 2009, but looks poised to take off. It closed at 41.25, and 43.25 would be its next target. That’s almost a 10% upmove, which would be very powerful. We'll have to consider getting into it for the site.

Let’s take a look at some of the Chinese stocks inside the FXI. China Mobile Limited (CHL) is, in fact, 10% of the FXI. Although different from the Shanghai Composite’s chart, it has a good-looking chart. Actually, it peaked last August, too. Since then it has a base between around 45 and 52, where there's a resistance line, or neckline. It closed at about 50.94, so if it breaks above 52, there can be a pretty big move in China Mobile.

The weekly on China Mobile is a really impressive chart. It may be a little difficult for it to reach 75, but 65 may be attainable from 55, where it's currently at on the chart. That would be an 18% move. So, keep China Mobile in mind as a reflection of both an upmove of the China market and perhaps some resurgence in growth of China, which is perceived to be slowing down.

Sunday night's expected PMI report from China has investors eyeing the 50 level -- whether it will stay above or fall below 50. These charts are telling me that the PMI will probably be okay.

China Life Insurance Co. Ltd. (LFC) has a similar situation, with a nice-looking chart pattern. It finished a correction, coiled up, and is ready to take off. It closed at 67.17, and the trendline is at 69.50. If it breaks out here, it should retest the April high at 75.

The weekly looks really good, with everything turned up. It has a little base and correction of the long-term upmove, which it looks like it will continue. So, this one, too, is one to keep on your radar screen as an instrument or vehicle to take advantage of the China upside reversal.

CNOOC Ltd. (CEO) looks pretty bullish on a weekly as well as a daily chart, with higher lows and a flat top that looks like it wants to move up and test the 181 level from 168. If it gets through, it looks like it will test the highs up around 205. So, this is another one to keep an eye on.

Aluminum Corporation of China Limited (ACH) had a pretty big correction in January when it peaked, built a base since May, had a triple bottom around 18, and now it looks like it’s about to breakout based on Friday’s close, which is in keeping with the way the Shanghai Composite and the FXI closed. This is another stock that needs to be considered.

Baidu, Inc. (BIDU) looks like it’s going higher, possibly to 90. Of course, the risk up here is greater with Baidu.

Shanda Interactive Entertainment Ltd. (SNDA) looks okay, but not quite as good as the others. On a weekly chart, you can see all the work that it did on the downside since June 2009, It’s been stair-stepping down, and it’s no coincidence that it came down to the extension of the prior resistance line. Now, it could really take off. The oscillators are telling us that Shanda is probably sold out on the downside. The question is how much upside is there to follow. At the very least, this is another one that has had a correction in the bull market from way back and appears ready to embark on another upmove. The move should reach the highs around 55, which from its close at 40 would be another sizable gain out of China.

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By Mike Paulenoff

Mike Paulenoff is author of MPTrader.com (www.mptrader.com), a real-time diary of his technical analysis and trading alerts on ETFs covering metals, energy, equity indices, currencies, Treasuries, and specific industries and international regions.

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