China Stock Market Warning: “Go Away!”

By | May 21, 2015

“Go Away!” The warning from the China navy to the U.S. surveillance plane flying over a “fake” or man-made China island may good advice for investors in their, as some believe, “fake” or manipulated stock market. At least, “Take some profit!” is an appropriate admonition.

The Shanghai Stock Exchange Composite Index ($SSEC) and the Hong Kong Hang Seng Index ($HSI) have had spectacular gains this year, up 37% and 17% respectively, but it might be prudent to take some profit at this point in time.

55521Shanghaichart

The chart of the Shanghai Composite shows the index breaking above a five year downtrend line in June last year, and then going parabolic. It is currently at a 62% retracement of its 2007 and 2009 range. Could it continue higher? Sure, and taking some profit early this year as it was consolidating around the 38% Fibonacci level would have made sense, too. It went higher…you could have bought back in or not.

55521HangSengchart

The Hang Seng chart shows what could be the formation of a head and shoulders top. Watch the movement around the right shoulder. That is simple enough.

If you are skeptical about the fundamentals of the China stock market, monitor the technicals and the chart action carefully, they may be issuing a warning.

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