Is The Latest Chinese Bear Market Over?

Some very good strategists are turning bullish on the Chinese market.

“China’s longest bear market since 2005 is ending as government efforts to bolster the economy spur a rally in stocks, say the strategists whose buy recommendations two years ago preceded a 34 percent gain in the Shanghai Composite Index.”

From a high of 6429 reached in October ’07, the Shanghai Composite Index (SHCOMP) lost 73% of its value and dropped to 1749 by October ’08. The global market rally that followed ’08 crash took the composite back to only 3650 by August ’09 – a 38.2% retracement of the big crash.

After that the index has generally meandered lower in a downward sloping channel. Its recent low of 2234, reached on the first week of 2012, falls in a high probability reversal zone – between 70.7% and 78.6% retracement of the prior move.

Since then the composite has gained 15%. So does it mean that the long bear market is over?

For the last six months – Oct ’11 onwards – the index is making a down sloping inverse head and shoulder pattern, which it will complete if it closes above 2600. If the pattern is completed then it will give us a measured target of 2960 – a 32% increase from the low reached in the first week fo 2012 and 16% increase from the May 3rd close of 2556.

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