In ancient Greece, every tragic play was accompanied by a chorus — hence the use of the term “Greek chorus” — to express and comment on the issue raised by the dramatic action. It is often a song of doom. At the beginning of every year, many China analysts form a Greek Chorus and gravely predict the collapse of the Chinese economy.
In 2019, it was China’s unstainable debt that would lead to an almost instant collapse in the coming months. In 2020, it was the overheated property market. In 2021, it was Covid.
This year, there is no shortage of economic disasters forecast for China. Like police chief Captain Louis Renault in Casablanca, every time there is a problem, these analysts round up the usual suspects — property market collapse to be led in 2022 by Evergrande; unsustainable debt; Covid; an ageing population; and collapsing economic growth.
This year sees some new additions to the list of purported upcoming China calamities. The list includes:
- Sanctions to cripple China technological development and hence to act as a brake on China’s economic growth.
- Sanctions designed to cripple Xinjiang by blocking its economic development and so trigger a rebellion.
- The continuation of Chinese President Xi Jinping’s term of office which apparently, for some unexplained but self-evident reason, can only be bad for the economy.
- Rebellion within the leadership ranks of the Chinese Communist Party that will overthrow Xi and trigger economic disruption.
- Supply chain redirection away from China so that its export capacity is crippled. This idea was a raging failure in 2021, so there is no indication it will be successful in 2022.
- The collapse of the yuan leading to uncontrollable inflationary pressures which will stunt economic growth.
- Delisting and blocking new Chinese listings on American stock exchanges, which will deny these companies access to the capital necessary to maintain economic growth. This perverse policy conclusion seems to ignore the redirection and mobilisation of capital within China with new stock exchanges created to meet the demand.
China has survived decades of annual and ongoing doomsayer forecasts. Instead of collapse in 2008, China led the global economic recovery, lending a hand to Western markets and economies that had collapsed.
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Gordon Chang in 2001 published The Coming Collapse in China, predicting it would take 10 years. After a decade had passed, the Communist Party was still in power and Chang said, “But don’t think I’m taking my prediction back.” A decade later, and still undaunted by the failure of his prediction to come true after 20 years, Chang continues to hold true to his belief that China will collapse.
Serious investors cannot afford to be delusional. Nor can they afford to bet against China. China’s Greek Chorus is not singing a song of doom.
Technical outlook for the Shanghai market
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The rally peak in the Shanghai Index has confirmed the placement of a long-term uptrend line A. The Guppy Multiple Moving Average (GMMA) indicator is also confirming the development of the uptrend. The long-term group of averages provides information about the behaviour of investors. This group of averages is developing good separation and this shows that investors have become active buyers. When the index pulls back, the GMMA shows that investors are coming into the market as buyers.
There are four features to consider when analysing this chart.
The first feature is the new uptrend line C. The anchor-point is the low of Nov 11. The lows of Nov 29 and Dec 30 are the next two anchor-points for the uptrend. This uptrend line is used to define the lower support level for the developing uptrend.
The index has dipped below trendline C, and traders watch to see if this is a temporary dip or a significant change in trend behaviour.
The second feature is the long-term influence of the horizontal resistance level near 3,595. Previously, we located resistance near 3,580, but when the current index activity is included, it now appears that resistance is best located near 3,595. This resistance level has been decisively broken. It has twice been tested as a support level as the index pullback developed.
In future, this will act as a support level for any move below uptrend line C. This is currently being tested by the dip below trendline C.
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The third feature is the influence on the market of the long-term uptrend line A. The anchor-point for this line is March 2021. From March until July 26, this line acted as a support feature.
From July 26 until September, the uptrend line acted as a resistance level, capping the rallies. The September breakout was brief, and on Sept 28, the index again fell below the value of uptrend line A. After Sept 28, the line has acted as a resistance level.
A new rebound rally from support near 3,595 will find resistance at the value of uptrend line A, currently near 3,730.
The fourth feature is the difference in the behaviour or trends and rallies. A rally moves quickly upwards and contains no significant retreats.
A trend consists of a pattern of rallies and retreats as the price activity develops. It is a good mixture of up and down periods. The valleys in these retreat and rebound patterns allow for the placement of a trendline and this is used to define the trend. The most recent retreat and rebound behaviour has created the third anchor-point for trendline C.
This rally and retreat behaviour provides three anchor-points for a stable trendline and a stable trend development. The confirmation of trendline C is bullish.
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. The writer owns China stock and index ETFs
Cover photo: Bloomberg
