Chinese stock markets topping further confirmed

July 5, 2001

 

My last article on this topic (4/28/2001) is based on the fact that this is the third major up move, but not much technical signal is available at that moment, so it is mostly base on my stock market gut feeling. Luckily, it was proven to be correct from today's technical information.
      

From the Shenzhen A index since 1999 (fig. 1), it produced a big triangle formation with one upward support line touching all three bottoms of the three major up moves (wave I, II, III), and the horizontal resistant line around 700 pts again with three tops all hitting this resistant line, and turn down again. On closer examination of its movement in 2001, one can recognize an up wedge formation just below the upper resistant line of the big triangle formation (fig. 2). The upward wedge is a strong indication of market weakness. It usually appears at the end of a bull run. The measuring stick of the wedge is that it will usually drop to the base of the wedge, and in this case to around 615 pts. Such drop would be enough to force the index to penetrate the long support line of the big triangle down side. On such bear signal, it will trigger more selling. On the Shenzhen B index (fig. 3), the strong up surge have ended.     

  

The behavior of the Shanghai A index (fig. 4) is quite similar to that of Shenzhen A index, and also produced a wedge formation, and broken down side as expected. The measuring stick of the wedge suggests that it may go down to as low as 2,000 pts, the level of the suggested neck line (NL) in my last article (4/28/2001). The Shanghai B index (fig. 5) also shown that the strong up surge has ended.
      

Given the technical features above, it further confirms that the Chinese stock markets are at their top formation, but since the neck lines given in my last article (4/28/2001) has not been broken yet, Shanghai A index is likely to move sideways below 2,300 pts and above 2,000 points (Neck line level), while the Shenzhen A index will move sideways below 700 pts and above 600 pts (neck line level) for the moment. When the neck lines are broken, more drastic down moves will follow.    

  

As the Chinese stock markets are stagnant, more and more capital will move to Hong Kong (the only place Chinese currency can move out easily) to take advantage of the recent up surge of the red chips and H shares. For those who have an interest in the red chips and H shares, one should also be watchful of the Chinese markets because they are linked.