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China Stocks Moving Average May Rebound to April High: Technical Analysis

The Shanghai Composite Index’s rise above its 200-day moving average is a “positive sign” that signals further gains for the benchmark gauge, according to Schaeffer’s Investment Research.

The moving average may climb to April highs after the Chinese stock gauge exceeded the average for the first time in about six months yesterday, said Ryan Detrick, a Cincinnati- based analyst who studies chart patterns to predict prices at Schaeffer’s Investment. The 200-day moving average rose as high as 3,097 in April, according to data compiled by Bloomberg.

“With most other countries already above their respective 200-day moving averages, this could be a sign that China will begin to play catch-up,” Detrick said in e-mailed comments.

The Shanghai Composite was little changed at 2,840.59 at 9:37 a.m., after gaining 20 percent from the 2010 low on July 5, the threshold some investors consider the beginning of a bull market. The gauge remains Asia’s worst performer this year with a 13 percent decline, as the government boosted measures to slow the economy and cool property prices.

Chinese stocks will extend their rally as investors increase purchases in a market that lagged behind gains in Asia, according to Templeton Asset Management Ltd.’s Mark Mobius. “People will say ‘hey, Malaysia’s gone up, Indonesia’s gone up, now let’s go to China,’ it’ll get rotation.”

Indonesia’s Jakarta Composite Index has rallied 40 percent this year, while Thailand’s SET Index has jumped 33 percent and Malaysia’s FTSE Bursa Malaysia KLCI Index has risen 17 percent.

Improved Prospects

“Momentum has swung back in favor of the bulls,” Jamie Coutts, technical analyst at BGC Partners Inc. in Singapore, said in e-mailed comments. He said a shift in investor confidence favoring emerging markets over the “indebted” developed world has spurred fund flows into China.

The market’s rebound from the July low reflects improved prospects for the nation’s economy and speculation the yuan will strengthen. China’s manufacturing expanded at the fastest pace in four months in September, while industrial output rose 13.9 percent in August, exceeding economists’ estimates. Citing the economy’s outlook, Moody’s Investors Service on Oct. 8 put the nation’s debt rating on review for a possible upgrade.

China wants the yuan to appreciate “in a gradual way” instead of a sharp revaluation that may hurt the economy, central bank Governor Zhou Xiaochuan said on Oct. 8. The nation scrapped the currency’s dollar peg on June 19 after keeping it steady for almost two years to help exporters cope with the global financial crisis. The central bank has managed the yuan against a basket of currencies that includes the euro, the yen and the British pound since July 2005.

In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. The Fibonacci sequence was identified by Italian mathematician Leonardo Fibonacci in the 13th century. The ratio between the numbers, about 0.618, is known as the golden mean, and is used by technical analysts to find levels of resistance and support.

--Allen Wan. Editor: Richard Frost

To contact the Bloomberg News staff for this story: Allen Wan in Shanghai at awan3@bloomberg.net

To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net

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