Some very good strategists are turning bullish on the Chinese market.
“China’s longest bear market since 2005 is ending as government efforts to bolster the economy spur a rally in stocks, say the strategists whose buy recommendations two years ago preceded a 34 percent gain in the Shanghai Composite Index.”
From a high of 6429 reached in October ’07, the Shanghai Composite Index (SHCOMP) lost 73% of its value and dropped to 1749 by October ’08. The global market rally that followed ’08 crash took the composite back to only 3650 by August ’09 – a 38.2% retracement of the big crash.
After that the index has generally meandered lower in a downward sloping channel. Its recent low of 2234, reached on the first week of 2012, falls in a high probability reversal zone – between 70.7% and 78.6% retracement of the prior move.
Since then the composite has gained 15%. So does it mean that the long bear market is over?
For the last six months – Oct ’11 onwards – the index is making a down sloping inverse head and shoulder pattern, which it will complete if it closes above 2600. If the pattern is completed then it will give us a measured target of 2960 – a 32% increase from the low reached in the first week fo 2012 and 16% increase from the May 3rd close of 2556.
