We haven’t paid much attention to the Chinese stock market this year.
There hasn’t been any need to. The Shanghai Stock Exchange Composite Index (SSEC) is basically unchanged on the year. The SSEC ended 2020 at 3500. It closed at 3490 on Friday.
That seems strange though, doesn’t it?
After all, in an environment that is rife with speculative activity, Chinese stocks should be racing ahead.
But, while YOLO (You Only Live Once) traders have been throwing their stimulus money at “meme stocks” and dog-faced cryptocurrencies, they’ve been ignoring the more traditional casino of the Chinese stock market.
That’s about to change…
The SSEC made a bullish move higher last week. And, it looks to me like it could be the start of the next big speculative rush.
Take a look at this chart…
The SSEC has spent the past two months in a relatively tight trading range between 3360 and 3450. It broke out to the upside of that trading range last week.
All of the various moving averages have coiled together. So, there’s plenty of energy built up to fuel the next big move.
And, if you look closely, you’ll notice the moving averages have flipped into a bullish configuration – with the red 9-day exponential moving average (EMA) above the green 20-day EMA, and the 20-day EMA above the 50-day moving average (MA).
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Also, the momentum indicators at the bottom of the chart (MACD and RSI) are in neutral territory. They’re not even close to being overbought. So, they have plenty of room to run higher.
We had a similar setup in SSEC last November. The index was 15% higher about three months later. A similar move this time would have the SSEC trading above 4000 by the end of summer.
So, while it looks like other speculative assets are starting to cool off, China’s stock market is just starting to heat up.
Traders should consider getting in ahead of the YOLO crowd and buy China on any weakness this week.
Best regards and good trading,
Jeff Clark
Reader Mailbag
Are you more into the “meme stocks” or are you ahead of the “YOLO crowd” and into the SSEC market?
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