Chinese Index Hot, Hot, Hot!
Thursday, October 4th, 2007
By George Leong, B.Comm. for Profit Confidential
Chinese-listed stocks on the Shanghai Composite Index (SCI) continue to be on fire after touching another all-time record high of 5,560.42 on Wednesday, October 3. The index is up 217% from its 52-week high and up 108% from the start of the year. Compare this to the 11% gains in both the DOW and NASDAQ, and you’ll understand the vast opportunities in China-listed stocks and Chinese stocks listed on North American exchanges. The record move has materialized in spite of higher interest rates and government efforts to drive down the primary reason for the buying, which is speculation.
Technically, the price trend for the SCI is positive with an above- average Relative Strength Index (RSI) reading. But be careful, as there appears to be some topping action on the chart at around 5,600. In addition, the MACD is trending lower, which does not confirm the rally and suggests a bearish divergence.
The index is holding above its 50-day and 20-day moving averages at 4,981 and 5,360, respectively. Watch for the SCI to hold above the aforementioned moving averages; otherwise, we could see another decline to a lower pivot point at 5,025. Watch for potential volatility, as the Bollinger Bands are wide at 5,000-5,600 and suggest possible volatile market swings.
We continue to favor China for growth investors in spite of the current valuation and selling concerns. We do advise caution and suggest investors take some profits after run-ups.
We continue to like the longer-term situation in China and believe you should have some capital invested in China, whether it is with large-cap, blue-chip Chinese companies or with small, emerging higher-risk stocks. Areas that look encouraging are insurance, banking, technology, retail, industrial, and online advertising.
In spite of the risk in China-related stocks, we believe it would be an error to bypass the country. Investing outside of the U.S. helps to diversify returns and add some growth potential.
The key to investing in China is to be diversified. Invest only a portion of your capital in China. Besides small-cap stocks, you can also buy large-cap Chinese stocks or major U.S. companies with an expanding presence in China.
As we move forward, we continue to expect great potential and growing surfacing from China. The country has plenty of growth for the investor looking for international growth opportunities. Continue to add Chinese stocks to your well-diversified portfolio.
Next Post: Jump on Chinese Growth While It Lasts
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Tags: chinese stocks, dow jones, interest rates
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George is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. His trading advice on stocks and options is also found on his daily trading site, Daily Profits. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services.
