Trader’s Narrative

The Coppock Curve or Guide is an obscure indicator which tracks the market over a long term time horizon. The indicator is quite simple to calculate but it moves very slowly. What it takes back through lag, it gives multiple fold through an uncanny prescience in determining significant turning points. For more information, check out my original post introducing the Coppock Guide.

Although originally created to track the US stock market, it can in effect be applied to any index. In fact last month, the Coppock Curve turned positive for the Chinese market. I’m relying on the slightly modified IC/Coppock Curve. Since they don’t exactly detail how their calculation is different than the traditional, I’ve contacted them to inquire. When I hear back I’ll update this.

As you can see from the Shanghai stock exchange index, that was quite a while after it actually bottomed. This the inherent disadvantage of such a long term indicator. But if you were a long time reader you would have caught what I wrote in early November 2008: Time to Consider Chinese Stocks. That’s almost to the day when the Chinese market bottomed. Lots of contrarian sentiment, a little dash of technical analysis and a pinch of luck

Since the day I suggested the long side of the Chinese market, the Shanghai index has appreciated by 53%. The numerous ETFs and securities I mentioned have also gone up - the ones that haven’t, bottomed in late rather than early November 2008:

• Morgan Stanley’s China A-Share Fund (CAF) — 80%
• Taiwan Greater China Fund (TFC) — 5%
• The Greater China Fund Inc. (GCH) — 15%
• China Fund Inc. (CHN) — 21.5%
• JF China Region Fund Inc. (JFC) — 10%
• SPDR S&P China ETF (GXC) — 27%
• iShares FTSE/Xinhua China 25 Index (FXI) — 29%

The plus side to this is that if this is a true Coppock signal (that is not a false one) then we are in for another bull market in Shanghai which could last well into next year and take us back up to at least the mid-point of the two extremes - that is to the 3,800-4,000 level.

Also notice how the March 2009 swing low on the Shanghai index is higher than the October/November 2008 lows. And again, in early January 2009, when the S&P 500 was topping, Chinese equities were carving out another swing low. What we have here is higher lows, higher highs. In other words, a confirmed uptrend. And finally, the medium term (50 day - red line) moving average has turned up in support of price with the long term (150 day - blue line) moving average flattening. If this is what it looks like to be, then a pull back would present another opportunity to get on board a long term ride higher.

If you missed the China call and you’re kicking youself, do yourself a favor and grab my feed if you haven’t already and don’t overlook this next opportunity:

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While the Chinese stock market is white hot, non-Chinese are not allowed to participate. The only thing we can do is the next best thing: proxies in the form of ADRs or neighboring Asian markets like Hong Kong and Singapore.

Meanwhile, Li Ka-shing, Asia’s richest man said that the Chinese stock market “must be a bubble” and that he was worried about it. But I have a nagging feeling this mania will only get crazier (before it eventually bursts).

Reports of grandmothers investing and trading are trickling in already but we still have to see a truly spectacular zoom higher. I wouldn’t even be surprised if the wide eyed new investors in China would view Li Ka-shing’s from a conspiratorial point of view (”he wants to jawbone the market lower so he can buy more”).

If you want to play this volatile market, either long or short here are your options as an outsider:

ETFs
There are also two Exchange Traded Funds: iShares FTSE/Xinhua China 25 Index Fund (FXI) and the Powershares Golden Dragon Halter USX China Portfolio (PGJ). Who names these things?

The relevant Asian market ETFs are: Singapore iShares (EWS) and the Hong Kong iShares (EWH). Whether the Chinese market continues its meteoric rise or crashes, these are the ETFs which will be most effected.

Chinese ADRs
Here is an alphabetical list of Chinese ADRs trading on US exchanges.