Have Chinese Stocks Bottomed, Technically?

muiee
2022-03-21

Broader Markets

Let’s look at the Technicals to see what the Markets tell us or ‘market generated information’ based on price actions, rather than inferring how news and events would affect the stocks and Markets.

Starting with the broader Markets, using $S&P 500(.SPX)$  as the proxy, we can see on the weekly chart, the long green candle engulfing two previous weeks of red arrows to upside (bullish) and breaking the downtrend channel from January 2022.

If there is follow through, and price stays green and out of the downtrend channel for the next 1-2 weeks, we would be more confident to say trend has reversed to the upside. A similar breaking out of the downtrend can be seen in the tech heavy $NASDAQ 100(NDX)$ at 18 Mar close. As Chinese stocks have also been part of the surging rally to the upside, this support the thesis that the low is in for the Chinese stocks.

SPX Weekly Chart

Sector

Zooming in to the sector in particular, using the popular NASDAQ Golden Dragon China Index (HXC) tracking many of the Chinese stocks, we can see a strong rebound when it broke the downtrend channel and from the horizontal strong support (red box) and back, stopping almost right in the middle of the downtrend channel.

Unlike SPX500, it has not broken the downtrend to the upside yet, so need some confirmation in the next few weeks to see if price rises and break the downtrend channel. On balance of probability, strong green weekly candle impulsive move might favour more buying in the coming sessions, and we would not revisit the recent low of this Chinese Stock sector index.

HXC Weekly Chart

Individual Stocks

Down to individual stock's level, looking at one of the bellwether of Chinese stocks $Alibaba(BABA)$ , we can see what looked like capitulation, and then price rebounded to previous consolidation zone (orange box) of strong support. The trend is hazy at specific stock, some others like JD and NetEase are clearer, but it does show similar price action as the sector and broad indices. The next few weeks to a month are thus crucial for us to get confirmation if the low is in, and we are in a trend reversal to the upside.

BABA Weekly Chart

Here's a good post making some similar points as my own humble analysis if you are interested in more...

Big Reversal in Chinese Internet Stocks Fuels Hopes




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Comments

  • SilentInvst1
    2022-03-21
    SilentInvst1
    let's hope the accommodative policy help to lift the Chinese stocks 😬
    • muiee: 
      Yes, hope there is follow through on these accommodative policy and don't do u-turns
  • Bioman21
    2022-03-21
    Bioman21
    I doubt it has bottomed. Can slowly add to your positions
    • muiee: 
      You got a point as not all signals point to possibly bottomed yet. Agree, good to be cautious and trade smaller
  • CY Tan
    2022-03-22
    CY Tan
    Chinese stocks will remain volatile, next few weeks are indeed critical to assess.
    • muiee: 
      Thanks we’ll watch together. some reporting this week too[Onlooker]
  • EdwardHughes
    2022-03-21
    EdwardHughes
    It is not wise to invest at the "bottom",i am waitting
    • muiee: 
      Agree, better to have some confirmation we are off the bottom before investing, else we might be trapped as it is a false bottom and we go further down
  • ElvisMarner
    2022-03-21
    ElvisMarner
    I think there is still room to fall.
    • muiee: 
      Agree, still risk price of individual stocks and sector falling back and resuming downtrend. Markets has habit of doing opposite to the dominant pattern. Just watch and trade price, not our bias
  • muiee
    2022-03-21
    muiee
    If you can’t read article shared at end of post due to paywall, try copy paste link below to browser to try
    • GacktEngReplymuiee: 
      Like
    • muiee: 
      https://www.bloombergquint.com/amp/markets/big-reversal-in-chinese-internet-stocks-fuels-hopes-tech-watch
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