Chinese Market is going Batty

The US has its FANG (Facebook, Amazon, Netflix, Alphabet – read Google) that is often the focus of the stock market. In China there is the BAT (Baidu, Alibaba and Tencent) that dominates the market. Lately Jack Ma, the CEO of Alibaba, and his crew have been unable to right the Chinese market though and it has plunged nearly 10% since the end of January. Can this BAT turn the market around?

Actually there is another Bat in play in the Chinese market. A harmonic Bat. The chart below shows the price action of the Shanghai Composite over the last 2 and a half years. It starts with the steep fall to start 2016 followed by a long push higher to a short term double top in March last year. Then another pullback to a higher low before the move up to the January high.

That January high pushed through the Potential Reversal Zone (PRZ) of a bearish Bat harmonic and printed a Terminal Price Bar to trigger the reversal. The pattern looks for a retracement of 38.2% of the broad pattern as a first target. This is about where the Composite sits now. And with the 200 day SMA in proximity this is a doubly important price level. The 200 day SMA has been key to the long term trend in the Composite.

Failure to hold here near term would look for a 61.8% retracement of the pattern, so back to about 3000 in the Shanghai Composite. With momentum building to the downside the prospects of a stall here are fading. The RSI however is now close to being in oversold territory, a glimmer of hope. Perhaps Jack Ma can send out the BAT signal to turn this market around.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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