Shanghai: SSE Composite Index (.SSEC) overall market sentiment has not yet reached an overheated level
China’s brokerages are sounding the alarm about the nation’s supercharged stocks.
Analysts either downgraded or issued sell ratings on 84 mainland-listed companies last month, the peak of China’s annual earnings season, according to data compiled by Bloomberg. That’s the highest number for any comparable period since 2011, and comes at a time when Chinese stocks extended this year’s world-beating rally to 24 per cent.
Traders are taking it as another sign that Beijing wants to prevent a stock bubble forming. Negative analyst reports are so rare in China that they can trigger a wave of selling across the entire $US7 trillion ($9.8 trillion) equity market. Brokers have little business incentive to be negative on a stock: shorting shares remains extremely difficult, meaning securities firms generate a lot more money when their clients are in the mood to buy.
Beijing has reprimanded the sell side in the past: the state media’s 2017 takedown of Kweichow Moutai analysts resulted in a $6 billion wipeout.
Reviving risk appetite while avoiding a bubble has always been tricky in China. This year, with every major benchmark entering a bull market, small capitalisation companies overheating and daily turnover surging – drawing comparisons to recent history has been inevitable.
The CSI 300 Index’s first-quarter rally was its biggest since the end of 2014, when China’s last bubble was forming. That has put authorities on high alert to prevent a repeat of the crash that ensued.
While they have warned on leverage and speculation, Beijing has stayed clear of the heavy-handed approach that drew criticism from investors around the world last time. Chinese traders have taken on more leverage in recent months to chase the rally, with margin debt rising to its highest level since July.
However, it is still nowhere near the record $2.3 trillion yuan ($US342 billion) reached in 2015.
“Lessons learned from 2015 have led to tighter control of leverage,” Morgan Stanley strategists, including Laura Wang, wrote in note last month. “We believe the rally is still in the early stage and overall market sentiment has not yet reached an overheated level.”
Overall, the bias in prices is: Upwards.
Note: this chart shows extraordinary price action to the upside.
The projected upper bound is: 3,316.06.
The projected lower bound is: 3,050.05.
The projected closing price is: 3,183.05.
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 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 34 white candles and 16 black candles for a net of 18 white candles.
A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 5 rising windows in the last 50 candles–this makes the current rising window even more bullish.
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 70.7777. This is not an overbought or oversold reading. The last signal was a buy 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 66.51. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 16 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 176.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 6 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 sell 13 period(s) ago.
Rex Takasugi – TD Profile
SSE COMPOSITE closed up 79.603 at 3,170.361. Volume was 96% above average (neutral) and Bollinger Bands were 17% narrower than normal.
Open High Low Close Volume___
Short Term: Neutral
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period 50-period 200-period
Close: 3,070.61 2,849.76 2,743.21
Volatility: 29 29 27
Volume: 36,430,471,168 31,161,712,640 18,306,746,368
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 gapped up today (bullish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
SSE COMPOSITE is currently 15.6% above its 200-period moving average and is in an upward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of .SSEC at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bullish on .SSEC and have had this outlook for the last 49 periods. The security price has set a new 14-period high while our momentum oscillator has not. This is a bearish divergence.