CHNComp pulls back from crucial resistance

CHNComp pulled back from 6-month highs as Chinese markets resumed trading after week-long Lunar New Year holidays, potentially snapping a recent rally driven by China’s rapid reopening hopes.  Even stronger consumer spending expectations failed to sustain market optimism. Over the weekend Chinese authorities said that they would promote consumption recovery as a major economic driver and seek to boost imports, bolstering the outlook in Asia’s largest economy. 

PBoC extended 3 targeted lending tools. A lending tool for supporting carbon emission reduction was extended until end-2024 while relending tools for promoting clean use of coal, as well as relending tool for transport and logistic sector, were extended until end-2023.

Analysts also remain optimistic about the outlook for Chinese markets. Before the weekend Goldman lifted its year-end target for the MSCI China Index for a third time since November, and expects that the CSI 300 will reach 4,800pts compared to previous forecast of 4.500pts. Goldman analysts believe that China are evolving from “reopening” to a wider “growth recovery” theme and there is still an attractive upside potential.

“The current market rally is not just a consumer and services recovery trade but a more broad-based growth rebound spanning a wide range of industries,” Goldman strategists said.

Also robust spending and significant decrease of Covid-related death during the festive season are also optimistic signs. According to Chinese authorities, tourism receipts jumped 30% to 375.8 billion yuan (US$55.6 billion), which represents 73% of the revenue in 2019. Covid-19 deaths dropped by nearly 50.0% to 6,364 from the previous week.

“With herd immunity occurring faster than expected, undemanding valuations and with policy support likely to provide a backstop for growth, we continue to hold a positive view on the China market,” wrote James Wang, head of China strategy UBS.

CHNComp launched a massive upward correction in November, however buyers failed to break above major resistance at 7765 pts, which coincides with 38.2% Fibonacci retracement of the downward wave launched in February 2021. Index pulled back nearly 3.0% and is approaching the local upward trendline. Should a break lower occur, a downward move may deepen towards major support at 6700 pts which is marked with previous price reactions, 50 SMA (green line), 200 SMA (red line) and 23.6% retracement. Also a bearish divergence appeared on the Momentum indicator, which indicates building selling pressure. Source: xStation5