Excerpt from: “Crystal Ball for Investing and Trading” Book.
Status of Chinese SSX Index
To analyze the state of Chinese economy and finances, we use the Shanghai Stock Exchange Composite Index, a capitalization-weighted index of 300 Stocks. It tracks the daily price performance of all A-shares and B-shares listed on the exchange. The index was developed on December 19, 1990, with a base value of 100. Figure 13.13B shows a monthly chart of SSE Composite Index from 1992 to March 20, 2020.
Figure 13.13B – Chart courtesy of TC2000
The following points are worth highlighting:
- After bottoming in summer 1994 with a price of some 340, the Index went up to a price of some 2,200 in 2001. The Index correction started much later than the one of the DJ-30.
- The correction went from mid-2001 to Q2, 2005, with a loss of more than 50% from its high.
- From Q2, 2005, until Q3, 2007, SSE Composite skyrocketed from the low of some 1,000 to over 6,500 points, or a 550% gain, in a bit more than two years.
- After that, the index lost nearly all its gains but some 600, in a matter of some 15 months, down to a price of some 1,700 around the end of 2008.
- After the rally of 2009, it started a long-term correction until Q3, 2014. Then it skyrocketed again from the price of some 2,000 to over 5,100 until Q2, 2015.
- SSE Composite is in correction mode from summer 2015 to March 20, 2020. Meanwhile it is fluctuating within an up-trending channel since Q1, 2016.
- By looking at the chart, we notice somewhat strange patterns than what we are used to. The reason is that the Chinese economy is heavily dependent on and manipulated by Chinese government and politicians. As explained in chapter 1, such interventions distort the wave natural form and pattern. Although relatively more difficult to pinpoint recognizable patterns for profitable trading, the chart can still be used by “Cristal Ball” for trading.
China is an export champion with a huge surplus of some $570 billion in 2016. This championship is a huge asset when the world economies are growing and expanding. However, and in times of deflation and depression, this asset becomes a huge liability because the overall volume of exchanged goods and services shrinks drastically. Furthermore, President Trump’s policy of protectionism could hurt most countries with trade surplus such as China and Germany.
The Shanghai Index would most likely undergo a major correction along with the DJ-30 wave E. The SSE Composite Index should probably find support in the lower area of 1994 with a price of some 340.
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