SAMT Blog
China & USA
14. March 2021, by Mario V. Guffanti
Technical Analysis
Already in the past I compared the Chinese and the American stock market (see this link). The relative strength ratio between these two markets has historically told how an alternation of strength between American and Chinese stocks has always prevailed. I would like with this article to focus instead on the short term, always evaluating in terms of relative strength what is happening in the Chinese market after the Spring Festival that saw the Chinese market closed in the period between 11 and 17 February.
In the chart below we have in the upper box the MSCI International CHINA A on Shore index, in the middle box the American S&P 500 index and in the lower box, the relative strength ratio between the two markets. When the relative strength index comes down, the US market is stronger.
What we can notice is the sharp loss of strength of the Chinese index right after the Spring Festival. It is true that this is a short-term movement, but we suggest to follow closely the movements in the coming weeks, as such a rapid and deep fall, in case it does not stabilize in the short term, could be indicative of further weakening.
As we can clearly see in the USD performance chart below, the Chinese index has now entered the negative zone since the beginning of the year.
In the daily chart of the MSCI International CHINA A on Shore Index below, we can see that the MACD oscillator is flattening, and prices are rising, but it is important, for the resumption of the trend, the crossing of the resistance at the level of 5,600 CNY (870 USD) indicated by the red dotted line.
It is reasonable to think that the two markets, in terms of relative strength, will continue to alternate in the future as it has happened in the past: but this sharp movement of the Chinese market needs special attention in the coming weeks, in order to evaluate that it is only a temporary corrective movement and not something different. What is important is that the Chinese market index remains above its 200-day moving average, indicated with a continuous red line in the first panel of the first chart.
About the author
Mario Valentino Guffanti is a board member and Head of the Lugano Chapter. He is a financial advisor, technical analyst and researcher based in Milan, Italy. As an author of technical articles and lecturer as well as instructor in technical analysis courses in Switzerland, he is also dedicated to financial coaching through NLP techniques (neuro-linguistic programming).
Disclaimer: All methods, techniques, charts, analysis or results presented in this SAMT Blog are for educational purposes only. The information provided should not be construed in any way as a recommendation to buy or sell any financial instrument. You should always consult with your licensed financial advisor and tax advisor to determine the suitability of any investment to your particular financial situation. The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity. SAMT and its affiliates, directors or agents will not be held liable or responsible for your investment decisions.
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