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Thursday, August 28, 2014
Chinese stocks are in a brand-new bull market.
The Shanghai Stock Exchange Composite Index (the "SSEC") – China's version of the Dow Jones Industrial Average – is up around 8% in less than a month. It's up around 10% since we told you about Chinese stocks back in May.
And there are much larger gains ahead.
But after such a big run-up in a short amount of time, the SSEC is likely to suffer a brief pullback. And that's when traders will have a chance to buy...
Take a look at this chart of the SSEC...
You can see the terrific rally that followed the breakout of the consolidating-triangle pattern (the blue lines) last month. The SSEC moved straight up to last December's high, where it hit resistance and pulled back.
Now take a look at the SSEC's 50-day moving average (DMA). The 50-DMA often serves as a magnet for stock prices. A stock rarely moves too far above or below its 50-DMA without coming back and testing the line as either support or resistance.
As you can see in the chart, it's rare for the SSEC to move more than 5% or so away from its 50-DMA. But after last month's big breakout, the SSEC was nearly 10% above its 50-DMA. That's too big of a move too soon. So now the SSEC is coming back down... And it will likely test its 50-DMA as support.
Traders should look to buy at that point.
China is in the early stages of a bull market. And there are big gains ahead. As I wrote last month, the SSEC could rally to 2,500 over the next few months. So traders should use any short-term weakness in Chinese stocks as a chance to get onboard.
Best regards and good trading,
"Any way you look at it, China's largest companies are dirt-cheap compared with the rest of the world," Brett Eversole writes. He says that from today's levels, "triple-digit gains are the norm... And no one's paying attention..." Learn Brett's simple way to buy Chinese stocks right here.
"Places like China, Greece, and Russia aren't the most savory places to invest today," Steve Sjuggerud writes. But "if you don't at least have these beaten-down emerging markets on your radar, you're making a mistake. They're the best value in the world today." Get Steve's full report here.
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