Shanghai: SSE Composite Index (.SSEC) analysts are suggesting investors to pile into shares
A surge in equities is stealing the show from China’s world-leading bond rally, prompting analysts to recommend clients pile into stocks rather than debt.
The rally since Jan. 3 has added almost $1 trillion to the value of the country’s equities, while China’s sovereign notes have barely moved. Though both asset classes benefit from potential policy loosening, stocks got an extra boost from easing trade tensions and now look cheap after the worst plunge in a decade last year. More analysts are touting equities over debt, with Huachuang Securities Co. saying the latter may decline in coming months as risk appetite strengthens.
Bonds will likely be pressured in the next three to six months, as investors withdraw their money from fixed-income funds to buy stocks, Li Junjiang, an analyst at Huachuang, wrote in a note. Equities are better investments than bonds, while corporate notes are preferred over government and policy bank debt, according to Industrial Securities Co.
That doesn’t mean equities are sure bets — signs of overheating are already flashing in a recent surge underpinned by fickle investor sentiment. Traders borrowed more cash to chase the rally, with buying momentum so strong that it sent four major indexes into overdrive this week.
The yield on China’s 10-year government bonds rose 1 basis points over the past month to 3.14 percent as of Friday, while the Shanghai Composite Index surged 8.6 percent during the same period.
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
By the way, prices are vulnerable to a correction towards 2,653.34.
The projected upper bound is: 2,882.54.
The projected lower bound is: 2,732.09.
The projected closing price is: 2,807.31.
A big white candle occurred. This is generally considered bullish, as prices closed significantly higher than they opened. If the candle appears when prices are “low,” it may be the first sign of a bottom. If it occurs when prices are rebounding off of a support area (e.g., a moving average, trendline, or retracement level), the long white candle adds credibility to the support. Similarly, if the candle appears during a breakout above a resistance area, the long white candle adds credibility to the breakout.
During the past 10 bars, there have been 7 white candles and 3 black candles for a net of 4 white candles. During the past 50 bars, there have been 28 white candles and 22 black candles for a net of 6 white candles.
An engulfing bullish line occurred (where a white candle’s real body completely contains the previous black candle’s real body). The engulfing bullish pattern is bullish during a downtrend. It then signifies that the momentum may be shifting from the bears to the bulls.
If the engulfing bullish pattern occurs during an uptrend (which appears to be the case with SSE COMPOSITE), it may be a last engulfing top which indicates a top. The test to see if this is the case is if the next candle closes below the top of the current (white) candle’s real body.
Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.
One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 80.6728. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 1 period(s) ago.
Relative Strength Index (RSI)
The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 74.76. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 1 period(s) ago.
Commodity Channel Index (CCI)
The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 104.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 13 period(s) ago.
The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 29 period(s) ago.
Rex Takasugi – TD Profile
SSE COMPOSITE closed up 52.425 at 2,804.226. Volume was 82% above average (neutral) and Bollinger Bands were 47% wider than normal.
Open High Low Close Volume___
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 2,727.62 2,593.67 2,756.31
Volatility: 22 18 24
Volume: 23,704,219,648 15,866,494,976 14,504,879,104
Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.
SSE COMPOSITE is currently 1.7% above its 200-period moving average and is in an upward trend. Volatility is extremely high when compared to the average volatility over the last 10 periods. There is a good possibility that volatility will decrease and prices will stabilize in the near term. Our volume indicators reflect moderate flows of volume into .SSEC (mildly bullish). Our trend forecasting oscillators are currently bullish on .SSEC and have had this outlook for the last 23 periods. Our momentum oscillator is currently indicating that .SSEC is currently in an overbought condition.
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