China’ stock market is in a long consolidation for almost 2 years now. When the Shanghai stock exchange (SSEC) recovered from its 2015 crash, it entered in April of 2016 the 3000 points area, and consolidated between 3000 and 3600 points since then. In May of 2018 the Shanghai stock exchange did something important: it tested successfully, for the 3d time, the 3000 point support level. We explain in this article why this is important.
A consolidation period, as many times, is nerve-wracking. Many investors tend to sell during a consolidation because they see better alternatives. Giving up during a consolidation may be a good idea, however, in most cases, prices start rising very often after selling.
When it comes to China’s stock market we wrote earlier this year: China’s Stock Market Close To Bullish In 2018 … Again. Three months ago, when we wrote this article, the SSEC was trading right below the 3400 points level. We wrote the following:
“Right now, we are at an important decision point, say a critical juncture. China’s stock market (SSEC) must go higher from here in order for the bulls to take control. If that does not happen, China will be struggling for a while.”
That’s what happened: the 3400 area appeared strong support, and China’s stock market has been struggling since then, as expected.
Note, in January of 2018, we were trapped when the SSEC made a false breakout. We wrote this: China Stock Market Goes For A Bullish Breakout, China Very Bullish In 2018. One or two weeks after the breakout, the SSEC came down strongly, and has been consolidating since then. This is what experts tend to call a false breakout. Most often, the breakout gets invalidated, and prices get back to their previous pattern, within 1 or 2 weeks. That is why it is always important to wait for 3 consecutive weeks before knowing for sure that a breakout is confirmed.
We wrote in January:
“We see an easy ride to the 4200 level which is a rally of 20 percent in the SSEC index. That should happen in 2018. The test of all-time highs another 20 percent higher could take place in 2019.”
We still believe this may occur in 2018, though we want to see strong action in China (SSEC). What are the odds China will do good in 2018? We believe the odds are very high, because Emerging Markets Are Very Bullish In 2018 and 2019. As emerging markets are expected to outperform, China is likely to get influenced by this.
We have said many times that FXI ETF (FXI) is a great way to play China’s great bull market, and we still strongly believe in it. Although on a tactical level (medium term timeframe) China may be consolidating, on a secular timeframe (long term) China’s stock market is in a very powerful bull market. Again, patience will get rewarded.
