Is China’s A50 ready to bust higher?

The China A50 Index is currently forming a flag pattern

Uptrend 1

China’s economy has slowly been grinding higher.  Unlike other countries, which faced a steep contraction of economic activity and then a quick spike in activity, China’s recovery has been moving slowly and steadily higher.  Manufacturing PMI has been steady between 50.6 and 52.1 over the past year, however intense input and output price increases have dulled the data series lately.  China’s inflation data is due out next week. Traders will be watching to see if CPI is able to uptick from April’s reading of 0.9%.  Current expectations are for 1%. With the slow but steady growth,  current low headline CPI data, and increased demand from abroad, one may think China’s stocks are flying.  However, China is a having raw material input issues of its own, which may be holding stocks back.  They  are rising, but not soaring.

What are economic indicators?

The China A50 Index gives investors access to the China domestic A shares.  The main stock index grinded higher into mid-February of this year, near 20603, before pulling back as the RSI was in overbought territory and diverging from price.  The A50 Index pulled back and held support at the spike high from July 6, 2021 (dark green line), near 16486.  As price began to move higher, it broke above a downward sloping trendline from early March and is currently forming a flag pattern.

Source: Tradingview, City Index

Notice how price moved to the 50% retracement level from the February 18th highs to the April 15th lows, near 18544, before consolidating in its current pattern.  The lower shadows on the candlesticks over the last 5 sessions indicate that although there was selling early in each day,  buyers entered the market and took control each session towards the closes. The lows of the flag are holding support at the 100-day moving average just above 17943.   If price breaks above 18400, it will break out of the top of the flag.  The target of a flag pattern is the length of the flagpole added to the breakout point of the flag.  In this case it’s near 19260.  However, if price is to reach its target, it must first pass through the previously mentioned 50% retracement level at 18544 and the 61.8% Fibonacci retracement level from the same timeframe near 19030.  In the event price can’t hold the 100 Day Moving Average at the bottom of the flag, horizontal support is just below at 17791, ahead of what would be a retest of the downward sloping trendline from early March, near 17200. 

If China is to continue with its recovery and stock market indices are to continue to move higher, the China A50 Index must first break out of its flag formation.  The target is near 19260.  If price does reach the target, it may well continue its way to the February all-time highs!

Learn more about index trading opportunities.


Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.