Predictions about the coming year are usually made in January and this holds true of the China outlook. In China’s case, 2022 saw a continual stream of dismal forecasts. These dire predictions were monotonous, repetitive and all gravely predict the collapse of the Chinese economy.
The critics have again trotted out much the same unchanged predictions for 2023. The 2022/23 list of purported China calamities are shown in the table below.
China has survived decade after decade of doomsayer forecasts. China critic Gordon Chang in 2001 published The Coming Collapse In China, predicting it would take 10 years. In 2011, the Communist Party was still in power and Chang said: “Don’t think I’m taking my prediction back.” A decade later in 2021, he remained undaunted by the failure of his prediction to come true after 20 years.
Now, in 2023, Chang and others continue to believe China will collapse.
Unlike these China critics, serious investors cannot afford to be delusional. Three years of Covid isolation have changed the structure of the Chinese economy and with the dropping of Covid restrictions, those changes are about to be unleashed.
See also: China tightens securities lending rule to support stock market
Technical outlook for the Shanghai market
The Shanghai index is moving towards a second retest of the first resistance target near 3,220. The index has rebounded strongly from two support features.
See also: Eight reasons why I am still in favour of China stocks
The upside target is set by a narrow resistance band. The 3,220 level is the lower edge of a resistance band. The upper edge of the band is near 3,280. The most bullish development is a further move towards 3,280 followed by consolidation within the resistance band. This may develop as a holding pattern in the lead-up to the Spring Festival holiday.
The index chart has three features that suggest uptrend breakout activity will continue to develop into a new longer-term uptrend.
The first feature is that the index activity is part of a long-term trend reversal double-bottom rebound pattern. The first target for the pattern is the top of the previous pattern peak near 3,415. The path to achieve this price target is not smooth.
The second feature is the way the rebound action continues to be defined by a fan pattern. The fan pattern signals a long-term trend change. The fan starts from a single point, shown as point 1. It consists of a series of trend lines, shown as lines A, B, C and D. The fan pattern is often associated with very long-term breakout patterns that develop over many months.
The third feature is trend line D. This is also the long-term downtrend line starting from the high of 3,424 on July 5, 2022. This trend line is also important because it forms a new support feature for the recent market retreat. This support feature is combined with a recent support level near 3030 shown as line E. The combination of these two support features provided a base for the move towards resistance near 3,220.
The behaviour of the Guppy Multiple Moving Average (GMMA) indicator shows that investors are cautiously bullish. The long-term GMMA is compressed and moving up. This shows cautious investor buying. It shows that investors have stopped selling, so it is easier for the rally to move above the long-term GMMA. The short-term group of averages have moved completely above the long-term group. This supports a rally continuation. The index has used two support features as a base for current rally and the development of an uptrend.
Daryl Guppy is an international financial technical analysis expert. He has provided weekly Shanghai Index analysis for mainland Chinese media for two decades. Guppy appears regularly on CNBC Asia and is known as “The Chart Man”. He is a national board member of the Australia China Business Council
