Chinese Equity Market … The Trend Beacon Got It Right!

The Trend Beacon described the Chinese equity market as “overheated” in its featured article from the 23May15 edition, three weeks prior to the 15Jun15 top. Here’s a reprint of the article:

Featured Article: Chinese Equity Market … Overheated
May 23, 2015 by murph

If you took a long position in the Dow Jones China Broad Market Index (DJCHINA) one year ago today, you would have a 142% return. Not bad for one year’s work. The chart below displays the price history of the index (symbol: $DJCHINA) dating back to 2003.

$DJCHINA Weekly Chart, 23May15

The chart appears to be in an extended position, exhibiting characteristics of a blow-off top. To that, we overlay this week’s news regarding the chairman of Hong-Kong listed Hanergy Thin Film Power … Mr. Li Hejun’s net worth plummeted an estimated 50%, or $14 billion. Some studies have pointed to the lack of liquidity in the issue as the primary cause … offer volumes were substantially higher than bid volumes.

A review of Murphy & Company’s proprietary Overbought vs Oversold indicator for the Dow Jones China Broad Market Index offers a compelling view.

DJCHINA Index, Indicator, 23May15

Our work suggests the $DJCHINA Index is in an extremely overbought situation. We suspect a severe and volatile correction is near. (End of article.)

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