A Chimp And Bolton’s Nemesis

As most of us will be aware, until the financial crisis of 2007 – 8 (caused in my opinion because  the Euro was becoming too successful as an alternative to the U.S. Dollar / T Bonds for (non) tax  paid cash syphoned from emerging markets) even a chimp with a pin and a copy of the Financial Times could have been a successful fund manager. Now, unfortunately for many wannabe managers, only Warren Buffet has an easy ride as he gets offered assets at a discount to us mere mortals (remember the Goldman Sachs stake?)! I am reminded of how difficult it has been due to looking at the weekly chart of the Shanghai  index and the sad story of Anthony Bolton and his China based fund.

Indeed, he started his fund in 2010 around  about the time I was writing about the Chinese stock market being the new Japan type bear disaster in my first book (you can get my new AIM book below by the way). If the stock market legend had even a molecule of charting capability in his blood, he would have rested on his laurels and avoided the temptations of emerging market glory. Just to be clear, a stock or market with a chart like the Shanghai Composite is having a hard landing, and will fall painfully on a fundamental basis too.

As can be seen from the chart, the Shanghai index rose from near 1,000 in 2005 to over 6,000 in 2007, and then, in a phrase, was never the same again! 2009 witnessed a 50% bounce and since then we have been ‘treated’ to an accelerating drift from that time. What should be noticed is the way that even on rallies, the 200 week moving average – currently at 2,716, capped the price at all times. Also to be noted is the way that the 200 week line has just started to tick down in recent weeks, something which hints that rather than recovery being on its way, a new bear phase may be due. Indeed, I would back the initial unfilled gap to the downside through the 50 week moving average this week as a strong bear signal, one that on a weekly close for this market back below the 2,041 floor of 2012 could deliver a target as low as the 2008 price channel floor at 1400 by the end of the  year. Ouch!

Moving onto the Hang Sing Hong Song (also known as the Hang Seng!) index and we also have a market to go short of which, ironically, may appeal to those who feel that the Shanghai index has fallen too far for too long and so it is dangerous to jump on the band wagon here. In Hong Kong, it can be seen just how there have been relatively fresh signals of doom in the form of two island top reversals in May, followed by two unfilled gaps to the downside below the 200 day moving average – now at 22,063. The message here is that at least while there is no end of day close back above the top of the second unfilled gap to the downside at 20,896 that this market is likely to head towards two year support at 18,000 as a best case scenario, with the floor of the 2011 price channel at 16,000 the ultimate 2-3 month target.

As far as the Nikkei is concerned, I have actually drawn the price channel here that goes with the bull argument – just to show how even handed I can be. In fact, I not only do not think this market has rehabilitated itself, I also do not want it to rally as that would be a victory for intervention – something I do not believe in. Indeed, the best advice here would be to wait on either the floor of the channel at 12,700 to break if you are a bear, or the red June resistance line at 13,500 to be the buy trigger for the bulls. What is worth keeping an eye out for as well is the RSI currently at 43. At least while below neutral 50 this tips the bias in terms of the recent consolidation towards the downside. On this basis, if pushed, I would be calling the Japanese index back to the 200 day moving average currently at 11,143 over the summer, even if the post winter 12 recovery resumes after that.