Shanghai: SSE Composite Index (.SSEC) STAR Board’s hot debut fizzles as market strategists advise caution going forward

Shanghai: SSE Composite Index (.SSEC) STAR Board’s hot debut fizzles as market strategists advise caution going forward

Shanghai: SSE Composite Index (.SSEC) STAR Board’s hot debut fizzles as market strategists advise caution going forward

China last week debuted another stock exchange—the STAR Board—in a bid to drum up enthusiasm in its equity markets.

The new stock venue was first announced by Chinese Communist Party leader Xi Jinping last year in hopes of attracting domestic businesses, especially technology firms, to list in China, instead of seeking initial public offerings (IPO) abroad. Operated by the Shanghai Stock Exchange, STAR was billed as China’s own “Nasdaq” exchange.

STAR’s debut was a boon for the 25 companies that began trading at the exchange last week. The share prices of all 25 companies soared at their opening on July 22, with average gains of 140 percent at the end of the first day of trading. One of the most high-profile listings on STAR is China Railway Signal & Communication Corp., which also lists shares on the Hong Kong Stock Exchange.

Support from top Beijing officials generated substantial initial enthusiasm among retail investors.

“Gains were much stronger than expected, either due to unreasonable IPO pricing or speculative trading,” Zhu Junchun, an analyst at Lianxun Securities in Shanghai, told Bloomberg on July 22.

But investors lost money as quickly as they made it.

On the second day of trading—July 23—all but four of the 25 companies’ shares fell, wiping out roughly 9 percent of their value. The state-run China Railway Signal and Communication was the biggest loser on day two: Its stock fell by 18.4 percent.

Sentiment in Chinese equities is mixed today, and some leading market strategists are advocating for caution. Chinese equity valuations seem rich at the moment, despite hype generated by STAR.

“We do not believe the near-term enthusiasm for STAR trading can meaningfully boost the A-share market overall from the perspective of both sentiment and fundamentals,” Morgan Stanley Asia equity strategist Laura Wang wrote in a research note to clients on July 26.

Overall, the bias in prices is: Sideways.

By the way, prices are vulnerable to a correction towards 2,951.83.

The projected upper bound is: 3,031.93.

The projected lower bound is: 2,856.70.

The projected closing price is: 2,944.32.

Candlesticks

A white body occurred (because prices closed higher than they opened).
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 25 white candles and 25 black candles.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

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.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 88.1443. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 9 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 51.23. 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 buy 54 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 116.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a buy 2 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 0 period(s) ago.

Rex Takasugi – TD Profile

SSE COMPOSITE closed up 7.181 at 2,944.541. Volume was 45% below average (neutral) and Bollinger Bands were 32% narrower than normal.

Open     High      Low     Close     Volume___
2,928.0612,948.3262,924.4512,944.54113,934,339,072
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 2,922.90 2,926.01 2,816.95
Volatility: 13 19 27
Volume: 14,987,041,792 19,095,091,200 22,677,063,680

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.

Summary

SSE COMPOSITE is currently 4.5% above its 200-period moving average and is in an downward trend. Volatility is relatively normal 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 bearish on .SSEC and have had this outlook for the last 8 periods.

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