Has China's Stock Bubble Popped?
Wednesday, 1 July 2015 pper
China’s red-hot stock market fell approximately 25 percent in the past couple weeks due to increasing regulatory scrutiny and growing bubble fears. The 145 percent rally began last summer after the government further opened the nation’s equity market to foreign investors, and domestic retail investors have scrambled to get a piece of the action. While I believe that China’s economy and stock market are experiencing unsustainable, debt-driven bubbles, I will show a technical analysis of the nation’s stock market to gain better insight into its short-term movements.
China’s benchmark Shanghai Composite Index has been climbing an uptrend line since the parabolic phase of the rally began in November. Despite the recent sell-off, the index is still above this key uptrend line, which is a positive sign. A break below this line, however, would give a bearish technical signal. In addition, 4,000 is likely an important psychological support level that should hold in order for the rally to remain intact. A break below both the uptrend line and the 4,000 support level would increase the likelihood of further downside.
Source: Stockcharts.com
The Dow Jones Shenzhen Index recently broke below its uptrend line that started in February and is now above the 600 to 660 support zone. A break below this support zone would increase the chances of further bearish action.
Source: Stockcharts.com
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