Is China’s A50 ready to bust higher?

The China A50 Index is currently forming a flag pattern

Uptrend 1

China’s economy has slowly been grinding higher.  Unlike other countries, which faced a steep contraction of economic activity and then a quick spike in activity, China’s recovery has been moving slowly and steadily higher.  Manufacturing PMI has been steady between 50.6 and 52.1 over the past year, however intense input and output price increases have dulled the data series lately.  China’s inflation data is due out next week. Traders will be watching to see if CPI is able to uptick from April’s reading of 0.9%.  Current expectations are for 1%. With the slow but steady growth,  current low headline CPI data, and increased demand from abroad, one may think China’s stocks are flying.  However, China is a having raw material input issues of its own, which may be holding stocks back.  They  are rising, but not soaring.

What are economic indicators?

The China A50 Index gives investors access to the China domestic A shares.  The main stock index grinded higher into mid-February of this year, near 20603, before pulling back as the RSI was in overbought territory and diverging from price.  The A50 Index pulled back and held support at the spike high from July 6, 2021 (dark green line), near 16486.  As price began to move higher, it broke above a downward sloping trendline from early March and is currently forming a flag pattern.

Source: Tradingview,

Notice how price moved to the 50% retracement level from the February 18th highs to the April 15th lows, near 18544, before consolidating in its current pattern.  The lower shadows on the candlesticks over the last 5 sessions indicate that although there was selling early in each day,  buyers entered the market and took control each session towards the closes. The lows of the flag are holding support at the 100-day moving average just above 17943.   If price breaks above 18400, it will break out of the top of the flag.  The target of a flag pattern is the length of the flagpole added to the breakout point of the flag.  In this case it’s near 19260.  However, if price is to reach its target, it must first pass through the previously mentioned 50% retracement level at 18544 and the 61.8% Fibonacci retracement level from the same timeframe near 19030.  In the event price can’t hold the 100 Day Moving Average at the bottom of the flag, horizontal support is just below at 17791, ahead of what would be a retest of the downward sloping trendline from early March, near 17200. 

If China is to continue with its recovery and stock market indices are to continue to move higher, the China A50 Index must first break out of its flag formation.  The target is near 19260.  If price does reach the target, it may well continue its way to the February all-time highs!

Learn more about index trading opportunities.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account