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.
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.
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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