The Shanghai Composite Experiences A Historic Breakout
- Shanghai Composite Ruptures Mega Trendline
- Chinese ETFs Breaking as Well
- Interesting Chinese Sector ETFs
Back in March, I wrote about the Chinese stock market, as it had started to improve in terms of relative action against the S&P. Since then, Chinese equities have moved higher with no net improvement in relative action, but now the Shanghai Composite ($SSEC) has experienced what could turn out to be a historic breakout, and that's giving a push to its relative performance as well.
Shanghai Composite Ruptures Mega Trendline
Chart 1 compares Shanghai Composite to its 18-month ROC. The exciting thing is that the ROC broke above a major down trendline earlier this year. That action was very similar to the 2006 and 2014 breaks, both of which were followed by huge advances. This week has seen the Index itself follow suit. It is also comfortably above its 12- and 24-month MAs.
Chart 2 plots the Index in daily format. It too has broken out to the upside. Here, we can see that the Special K has essentially been flat since 2017, but is nevertheless very close to a major break above its resistance trendline. I think the momentum from the Index breakout, combined with the bullish daily KST in the bottom window, will be sufficient to result in a Special K breakout as well. Unfortunately, StockCharts does not include volume, but other sources confirm that activity was very heavy on July 2, the day of the breakout.
Deutsche Trackers Harvest CSI 300 China-A Shares ETF Breaking as Well
The most popular Chinese ETF is the iShares China Large-Cap, the FXI, which essentially comprises Chinese A shares traded in Hong Kong. In my view, a purer play is the Deutsche Trackers Harvest CSI 300 China-A Shares ETF, the ASHR. Both have been plotted in Chart 3 along with the Shanghai Composite itself. You can see how the Shanghai and ASHR both peaked in 2015 whereas the FXI topped out in 2018. Also, both the Composite and the ASHR have broken out this week, but the FXI has not yet done so.
Chart 4 features the ASHR in greater detail, as it compares the price to its long-term KST and the relative action against the S&P Composite to its long-term momentum. Both KSTs are in a positive trend and are by no means overextended. That suggests that significant gains lie ahead. Note how the relative action broke above a major down trendline in March. It then corrected for a couple of months back to its extended down trendline and, with help from the KST for relative action, is now reasserting the March breakout.
Chart 5 focuses on the shorter-term relative picture, where the daily KST is supporting a breakout from a small base. Bottom line - Chinese equities are likely to outperform the S&P on both a long- and short-term basis.
Interesting Chinese Sector ETFs
We don't make recommendations at StockCharts, but there are a number of Chinese sector ETFs that look interesting. They are therefore mentioned for further possible study. There has been a great effort by the government to reorient the Chinese economy towards the consumer. In that respect, the Global X China Consumer ETF, the CHIQ, has broken out this week on an absolute and relative basis. Note how this action is being supported by both KSTs.
Chinext is a NASDAQ-style subsidiary of the Shenzhen Stock Exchange. Shares in these non-government growth stocks are included in the VanEck Vectors Chinext ETF (CNXT). That ETF is featured in Chart 7. It is experiencing similar bullish action to the CHIQ, with four positive indicators.
Finally, KraneShares CSI China Internet ETF (KWEB), in Chart 8, has also experienced a positive absolute and relative breakout.
Good luck and good charting,
Martin J. Pring
The views expressed in this article are those of the author and do not necessarily reflect the position or opinion of Pring Turner Capital Groupof Walnut Creek or its affiliates.
