Trend reversal signs in Major Chinese indices…..but…

For the week, the Shanghai Composite Index edged up 0.6% and the large-cap CSI 300 Index, China’s blue chip benchmark, climbed almost 2.0%. Both indices rallied more than 1.0% on Friday, the last day of trading before mainland markets close for a week-long holiday for the Chinese New Year.

With only a month left before the U.S. is set to ratchet up tariffs on Chinese imports, momentum has been building toward a possible trade deal. On Thursday, President Trump said that he would send Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer to China in mid-February for the next round of talks. Their visit comes after a Chinese delegation led by Vice Premier Liu He held talks with U.S. officials in Washington last week. Should both sides fail to broker an agreement by March 1, the Trump administration has said it will hike tariffs to 25% from their current 10% level on $200 billion in Chinese-made goods.

Last week the Caixin manufacturing PMI fell to a weaker-than-expected 48.3 reading in January, its lowest since February 2016. The Caixin reading was worse than the official PMI for January, which showed that a contraction in China’s manufacturing sector eased last month. Both PMI readings, however, came in under the 50 threshold that signifies contraction.


Technically there are signs of a trend reversal as two out of three indices have broken out and above the bearish downward sloping channel since last January and above their Daily Ichimoku clouds. However all three indices remain below the November highs. I believe a confirmation for the trend change will come once we recapture those November high levels shown as red rectangles in the chart below.

It is important to see how the major indices react when markets reopen. Will we see a gap up or a rejection? More analysis to come after the holiday season….take care everyone!!

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