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Chinese Stocks are Bottoming. Is the US Next?
Chinese stocks often lead U.S. stocks, and they appear to have bottomed.
The last few weeks, I noticed that BIDU, the Chinese e-commerce giant, has been up in a down market. So I looked at other Chinese stocks like BABA, JD, LI and NIO — all of them up the last few weeks, in a bear market.
This caught my attention. Big time.
To make sure it wasn’t an outlier, I ran a relative strength chart on StockCharts.com.
Relative to the S&P 500, Chinese stocks are KILLING IT:
The chart is a little hard to see, so click here to see it for yourself.
As you can see from the relative strength chart, China has gone up while US stocks have gone down. This should raise any investors antennae.
Chinese Stocks: A Leading Indicator?
I recall from my very early trading days in 2009, a seasoned veteran telling me “if you want to know what stocks will do, look to China”.
What he meant to say was that China tends to lead US stocks at major turning points. Or so he says. I never forgot that.
Here is an overlay of the Shanghai Stock Exchange with US stocks (S&P). As you can see at every major joint bottom in the last two decades, China bottomed before us.
Is China Bottoming Now? Bullish Signals Avail
We can see the Shanghai has bounced off of the 61.8 Fibonacci level, which happens to be the uptrend line as well as lower Bollinger on the monthly.
Price has bounced, and may continue to follow through.
A quick glance at Hong Kong tells us there is a play here, because it confirms a bottom in Asian stocks:
This monthly chart is extremely bullish with multiple candlestick reversals at the lower Bollinger. Remember, the longer the time frame, the more powerful the signal.
If history is any indication, the stock market is ripe for a relief rally and potentially new bull market.
Happy Trading 😊