Global stocks waiting for China to turn

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Given all the turmoil in Europe, readers would have probably expected that I update them on a European stock market chart. The reason I haven’t is because Europe is trading as expected. Similarly, the US chart is trading nicely to plan from last Monday’s update, bouncing off 1,330.

The Shanghai Stock Exchange chart on the other hand has become interesting. There remains doubt and scepticism regarding China – our largest trading partner – because if China derails, we derail.

I am pleased to say though that the positives outweigh the negatives comfortably at this point, so we are going to have a ‘risk on’ week. Shanghai remains one of the last major markets I’m waiting on to turn around, but we’re nearly there.

The chart below has been updated from my last mention of it on 20 June 2012.

Shanghai Stock Exchange

Now at 2,186. Target 2,424, (up 10.8%)


1) I identified the second and more major support of 2,134 back in June. This was threatened with a low of 2,153 on 12 July and appears to have bounced off this low. The 12th is indicated on the chart with an arrow, and was only 2 trading days ago.

2) Volume on 12 July was the highest since 4 June, confirming that there is good support buying around these lows.

3) Volume while low, has been slowly increasing as the index falls, although it peaked on 12 July, which was an up day. This suggests accumulation buying at the lower levels.

4) Given my above positives, I fully expect we will be in for a bounce this week in Shanghai.

5) The target level at 2,424 marked ‘T’ identified in June remains in place. This is now 10.8% higher.


1) First Support has been broken at 2,244. I was hoping the market would stabilise and not go to this level, which was 7% lower at the time. It in fact broke it two days later. I count this a small negative that is balanced out by the first positive point above.

2) Major support is at 2,134, only 2.4% lower. This is an important level. If this level breaks, then we will be forced to focus on lower, and perhaps much lower levels.

First level, market with an ‘l’ is at 1,995, or another 6.5% lower again. The importance of 2,134 can’t be overstated, as a fall below this point will mean the chart will have to try to re-establish a base between 2,134 and 1,665. This is in a range of 22%. A drop to 1,672 would take us back to 27 October 2008, post Lehman Bros crash. I only give this negative scenario a 20% chance, or less, but I do list it due to its significance.

3) The 200-day moving average remains pointing down.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.

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