China: Potential for a Meaningful Rally

By Sheldon McIntyre  SEP 28, 2012 10:30 AM

In the case of Shanghai Stock Exchange Index, there is a convergence of key technical criteria that suggests that a meaningful rally is near.

 


The Shanghai Stock Exchange Index (SHA:000001) has been in relentless decline since the middle of 2009 and is now near the 200-month SMA. The monthly chart seen below is showing a positive divergence between price and RS at the most recent lows. As well, the index has declined to its lower channel line.
 
Could a rally be in the offing? Let’s dig a little deeper.
 
Shanghai Stock Exchange Index (Monthly)
 

 
Once an index stabilizes at or near the 200-month SMA there is a high probability that it will begin a bear market rally that will top near the declining 200-week SMA. In the case of the Shanghai Stock Exchange Index the weekly chart is showing a positive divergence between price and RS at the most recent lows, and it is currently 31% below the 200-week SMA. The 31% is the widest deviation from the 200-week SMA since mid-2010.
 
Shanghai Stock Exchange Index (Weekly)
 

 

I was unable to locate any seasonality charts for the Shanghai Stock Exchange Index, but the seasonality chart for the Hang Seng (INDEXHANGSENG:HSI) is very bullish into the end of the year.
 

 
Stacking The Probabilities
As traders/investors we seek to stack as many probabilities in our favor prior to the allocation of capital. In the case of Shanghai Stock Exchange Index, there is a convergence of key technical criteria that suggests that a meaningful rally is near. I anticipate a rally of 25-30% in the coming weeks/months.
 
This article was originally published on See It Market.
No positions in stocks mentioned.