The Chinese stock market got hit with some bad news Tuesday.

MSCI, a U.S.-based provider of stock market indexes, announced it wasn’t adding China’s “A” shares to its emerging-markets index – a move that would have paved the way for overseas money to pour into China’s stock market.

[ad#Google Adsense 336×280-IA]The decision disappointed Chinese investors, who have already suffered a 45% loss in the Shanghai Stock Exchange Composite Index (the “SSEC”) since it peaked last June.

The few remaining China bulls were looking for some good news from MSCI to help spur some buying in Chinese stocks.

What they got instead was another delay and a promise to “try again next year.”

That was the kind of news that should have sent Chinese stocks reeling toward new lows for the year.

But that didn’t happen. Instead, the SSEC rallied 1.6% on the news.

And that sets up a lower-risk opportunity today…

Experienced traders know that when a stock – or a stock market – doesn’t fall in the face of bad news, then the sellers are likely exhausted and future downside action is limited. When a stock – or a stock market – actually goes up in the face of bad news, then it’s probably the start of at least a short-term rally.

So the bad news on China from MSCI is good news for traders looking to buy China.

Take a look at this chart of the SSEC…

The SSEC bottomed in late January and has been trading in a relatively tight range since then. As you can see in the chart, this action formed a consolidating-triangle pattern (blue lines). The index broke out to the upside of the triangle earlier this month, and it retested the former resistance level – now support – last week.

Support held, and the SSEC bounced in reaction to the MSCI news.

The nine-day exponential moving average (EMA) has curled higher and appears ready to complete a bullish cross above the 50-day moving average (DMA). This is the sort of action that occurs at the beginning of an intermediate-term uptrend.

So with the technical picture turning bullish and the SSEC rallying in the face of bad news, now looks like a lower-risk time for traders to step up and buy China.

Best regards and good trading,

Jeff Clark


Source: Growth Stock Wire