CHINA bull market update

As most are already aware: nearly every stock market in the world is now in a bull market. From the huge western hemipshere juggernauts to the small emerging markets of the world. The question then is not who is in a bull market, but how advanced is their bull market in terms of time and wave structure. The answer, surprisingly, leads to a generalization as well, with a couple of exceptions.

The longest running major bull market is in India: the Bombay Stock Exchange (BSE). Their bull market started in October 2001 with a cycle wave [1] kickoff, and is getting close to ending the current leg up which started in October 2002. Next is the United States, which started its cyclical bull market in October 2002, and it is also fairly well along in time and wave structure. Most of the other major markets started in the spring of 2003: the four majors in Europe FTSE/DAZ/CAC/MIB and the Asian ASX/NIK/STI/HSI. And for the most part, they are all fairly well along too. The one exception is China’s Shanghai Stock Exchange (SEC). Its bull market started less than one year ago in July 2005, and it has only risen 40% as compared to the others which have all risen well above 100% already. The world’s fastest growing, ( 9%-10% per annum ), emerging economy just started its bull market. In the months ahead, while most of the major stock exchanges will be topping out, China’s SEC will still be going strong. It is also important to note, that some of mainland China’s neighboring stock exchanges will probably extend their bull markets because of their economic involvement in China; namely Hong Kong, Singapore and possibly Australia. Korea and New Zealand, both of which I do not follow, might benefit as well. Since there isn’t any direct way of investing in China’s stock market for non-residents. London and Hong Kong ingeniously put together an ETF, managed by Barclay’s Bank: comprised of the 25 largest and most liquid companies headquartered in Hong Kong, that devrive most of their business from mainland China. The ETF is named the FTSE/Xinhua China 25 Index Fund (symbol FXI) which is traded on the NYSE. The FXI closely follows Hong Kong’s: Hang Seng Index (symbol HSI), and it’s index (FXT) is actually traded in the Hong Kong markets, with futures and options.

Technically, the Shanghai Stock Exchange Composite (symbol SSEC) has only completed two intermediate term waves from its July 2005 lows thus far. The first, labeled Major wave 1 completed in September and was followed by a Major wave 2 flat into early December. Then a lesser degree Intermediate wave i topped in late February, followed by a quick Intermediate wave ii into mid March. Currently the SSEC is in Intermediate wave iii of Major wave 1, and the first of five primary waves in its bull market. Basically, it’s just getting started!

The Hang Seng (HSI), conversely, is much further along than the SSEC. It completed Primary wave I in March 2004, corrected into May 2004 completing Primary wave II. Major wave 1 topped in early December 2004, and then corrected into late April 2005 completing Major wave 2. Now it starts to get interesting. Major wave 3 has been subdividing into waves of a lesser degree. Intermediate wave i completed in August 2005, and was corrected into late October 2005 completing Intermediate wave ii. The next advance began to align with Shanghai’s SEC, and completed the alignment at the late February highs ending Minor wave 1 (another subdivision). A quick correction into March, ending Minor wave 2 and the alignment was complete. The two indices: HSI and SEC were moving in unison until the recent interest rate hike in China. The Chinese traders took it as a positive sending their market to new highs on friday. The rest of the world’s traders took it as another opportunity to sell. Guess they know better than the people who live there ??? .

Currently, both indices appear to have completed four waves up from the early March lows and should now be in the intermediate term topping fifth wave. Expecting a push to new highs, in both indices, in the next couple of weeks. China is closed for the Labor day week starting May 1st. Yes, they take the whole week off. All charts are posted on chart link: SSEC daily/weekly, HSI daily/weekly and FXT daily/weekly.

About tony caldaro

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3 Responses to CHINA bull market update

  1. Unknown says:

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  2. tony says:

    Hi LB,
    No, I am claiming that I am using the FXI, as a surrogate, to invest in the SSEC. Sorry, I don\’t recommendations. Thanks for your response.


  3. Levi says:

    Are you claiming that individual investors should be using the FXI to play the long-term bull market in China?  Thanks.


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