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The Chinese stock market is likely to bottom in the spring of 2019.

The Shanghai market has been in the news. First, politics have attracted the attention of investors  worldwide. The question of trade sanctions has coincided with market turbulence. We still do not know what the eventual outcome will be. President Trump has used his statements and positions as bargaining chips in the past, so the ‘trade war’ could end at anytime. The question of intellectual property and the military developments in the South China Sea still hang over this market.

The index is at the bottom of our relative strength rankings of world markets, having fallen 14% in 2018. What clues can cycles provide to investors as to when the bear market may end? First, we examine the current condition of the average.

As most experienced analysts and investors know, relative strength is very important. Relative price will frequently reverse before absolute price does. In fact, experience demonstrates that a basing period of at least six months usually precedes a sustained move up. That is, the relative price must not make a new low over a six-month period. Below, we see the relative performance of the Shanghai Shenzhen CSI 300 Index  versus the S&P 500 in the third strip. The relative strength peaked in 2008 and has been declining since. Also, note that the momentum measure in the second strip reveals that this index has not even become oversold yet.

Chart 1

Relative strength has been falling for many years.Cycles Research Investments LLC

The daily graph below gives us a more recent picture. This ratio has recently made new lows, so a period of outperformance is unlikely over the near term. If a six-month base is necessary, we are unlikely to see a low until January if the basing period begins today.

Chart 2

Relative strength has recently hit new lows.Cycles Research Investments LLC

Let us look to the monthly cycle as to when the bull may awaken. The cycle moves up from mid-August to early November, but the longer-term low does not occur until the second quarter of 2019. This projection advises underweighting China until tat time.

Chart 3

The monthly cycle bottoms in the spring of 2019.Cycles Research Investments LLC

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Shutterstock

The Chinese stock market is likely to bottom in the spring of 2019.

The Shanghai market has been in the news. First, politics have attracted the attention of investors  worldwide. The question of trade sanctions has coincided with market turbulence. We still do not know what the eventual outcome will be. President Trump has used his statements and positions as bargaining chips in the past, so the ‘trade war’ could end at anytime. The question of intellectual property and the military developments in the South China Sea still hang over this market.

The index is at the bottom of our relative strength rankings of world markets, having fallen 14% in 2018. What clues can cycles provide to investors as to when the bear market may end? First, we examine the current condition of the average.

As most experienced analysts and investors know, relative strength is very important. Relative price will frequently reverse before absolute price does. In fact, experience demonstrates that a basing period of at least six months usually precedes a sustained move up. That is, the relative price must not make a new low over a six-month period. Below, we see the relative performance of the Shanghai Shenzhen CSI 300 Index  versus the S&P 500 in the third strip. The relative strength peaked in 2008 and has been declining since. Also, note that the momentum measure in the second strip reveals that this index has not even become oversold yet.

Chart 1

Relative strength has been falling for many years.Cycles Research Investments LLC

The daily graph below gives us a more recent picture. This ratio has recently made new lows, so a period of outperformance is unlikely over the near term. If a six-month base is necessary, we are unlikely to see a low until January if the basing period begins today.

Chart 2

Relative strength has recently hit new lows.Cycles Research Investments LLC

Let us look to the monthly cycle as to when the bull may awaken. The cycle moves up from mid-August to early November, but the longer-term low does not occur until the second quarter of 2019. This projection advises underweighting China until tat time.

Chart 3

The monthly cycle bottoms in the spring of 2019.Cycles Research Investments LLC