It’s time to buy China.
At its low earlier this year, the Shanghai Stock Exchange Composite Index (the “SSEC”) was trading almost 50% below its June 2015 peak.
It suffered a 25% decline in January alone.
That was enough of a move to push even the most optimistic China bulls into the bearish camp. It’s hard to find anyone right now who has anything nice to say about Chinese stocks.
But I do…
China’s stock market is turning bullish. Take a look at this 16-month chart of the SSEC…
As you can see, the SSEC hit bottom when it closed at 2,655 on January 28. It bounced 10% from there and then came back down to re-test that bottom one month later, closing at 2,687 on February 29.
[ad#Google Adsense 336×280-IA]That “double-bottom” pattern occurred with positive divergence on the moving average convergence divergence (MACD) momentum indicator.
In other words, as the SSEC was declining and retesting its low, the market’s momentum was turning bullish.
That’s usually an early warning sign that the trend of a market (or a stock) is changing from bearish to bullish.
We saw a similar setup on the SSEC’s chart in September – just before the index rallied 20% in two months.
Plus, the moving averages on the SSEC chart have also now aligned in a bullish configuration.
The nine-day exponential moving average crossed above the 50-day moving average two weeks ago. This “bullish cross” often leads to an intermediate-term move higher.
Finally, we’ve entered a seasonally strong period for China’s stock market. In four of the past six years, the SSEC has rallied in the spring. Just look at that monster rally last year, when the index gained almost 50% in three months.
I’m not looking for anything that dramatic this time. But with sentiment toward Chinese stocks so overwhelmingly bearish right now, the positive technical pattern on the chart, and the market entering a seasonally strong period, I like the odds for a rally.
It’s time to buy China.
Best regards and good trading,
Jeff Clark
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Source: Growth Stock Wire