Shanghai Golden Cross Signals Further Rally: Technical Analysis

The Shanghai Composite Index’s bull-market rally has driven the gauge into a so-called golden cross, a chart pattern that has historically preceded gains in the subsequent month.

The Shanghai gauge’s 50-day moving average rose to 2,193.09 yesterday, above the 200-day mean of 2,191.08. A golden cross occurs when the shorter-term average rises above the longer one while both are increasing. On all five occasions that this phenomenon occurred since 1996, the measure climbed by an average 6.3 percent in the month that followed.

“It’s an intermediate rally, not a major trend,” said Thomas Schroeder, managing director at Chart Partners Group Ltd. in Bangkok, a provider of trading strategies linked to technical analysis for bonds, currencies, equities and commodities. “After March, I’m more concerned the global economy won’t hold up. If you’ve bought before and hold through the golden cross you might do well.”

The Shanghai Composite entered a bull market on Jan. 29, having rebounded 24 percent from the lowest level in almost four years on Dec. 3 amid signs of an economic recovery. Gross domestic product may grow 8.1 percent this year after expanding 7.8 percent in 2012, according to the average of economists surveyed by Bloomberg.

Schroeder, who was previously global head of technical research for SG Securities, recommended to clients on Dec. 5 that they should buy Shanghai’s stocks after the index closed above the 2,020 level, he wrote in a Dec. 18 e-mail.

Technical analysts observe charts of trading patterns and prices to predict changes in a security, commodity, currency or index.

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