Shanghai Composite Index: Where To Now?

On August 23, 2015, we said the following:

“The next move in the price to the downside should confirm the downside move or indicate the ongoing battle between buyers and sellers.  The point indicated as the critical support will reveal the overall short-term direction of the index.  Although the move up or down is academic, it is the size of the move that will be most fascinating as we believe it will be massive.”

So far, the Shanghai Composite Index (SSE) has confirmed that the direction of the index is down, now it is only a matter of magnitude.  Already the Shanghai Composite Index has reached the mid-range downside target of 2,867.34.

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A large bounce at this level is hoped for as a continuation of the declining trend could spark a genuine panic.  If an upside bounce were to occur at this level, the SSE would face resistance at the ascending conservative downside target of 4,012.56.   It would be a +48% rise to the 4,400 ascending conservative downside target from the close of August 25, 2015. 

The flip side of a reversal to the upside is a decline to the extreme downside target of 1,722.12.  Our breakdown of the potential reversal points are as follows:

  • 2,450
  • 2,100
  • 1,722

The actions of the Chinese government have not been constructive for a change in the declining trend of the market.  The sooner restrictions intended to stop prices from falling are lifted the better the chance for Chinese stocks to fully recover.  The more involved the government becomes in the stock market the more we believe that 1,722 on the SSE is likely to occur.

Shanghai Composite Index: Downside Targets

The index to watch in the coming week is the Shanghai Composite Index (SSE) as it represents the raw emotions of the stock market in China.  Below we have applied Edson Gould’s Speed Resistance Lines [SRL] to the SSE to determine the potential downside targets to watch for.

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The SRL is ideally suited for a stock or index that has experienced a parabolic move to the upside.  When viewed from a historical perspective, the Shanghai Index meets the criteria of entering the entropy stage. 

Already the Shanghai Composite Index has declined below the conservative downside target of 4,012.56.  The July 23, 2015 upside failure coincided with the ascending conservative target.  This is the first true test of weakness in the upside move.  The next move in the price to the downside should confirm the downside move or indicate the ongoing battle between buyers and sellers.  The point indicated as the critical support will reveal the overall short-term direction of the index.  Although the move up or down is academic, it is the size of the move that will be most fascinating as we believe it will be massive.

Because the Shanghai Composite Index has a history of parabolic rises and subsequent crashes, our guess is that  declining to the 1,722.12 level should be expected.  In addition, if the SSE were to replicate the previous rise and fall in the period from 2005 to 2008, the index could drop as low as 1,447.37.

Canadian Dividend Watch List: August 2015

Below is the performance of the stocks that were on our Canadian Dividend Watch List from August 2014:

symbol Name 2014 2015 % Chg
TA.TO TransAlta Corp. 12.72 6.42 -49.53%
ESI.TO Ensign Energy Services Inc. 16.25 9.06 -44.25%
CGX.TO Cineplex Inc. 40.35 46.29 14.72%
RCI-B.TO Rogers Communications Inc. 43.24 46.9 8.46%
D-UN.TO Dream Office REIT 28.95 21.48 -25.80%
TLM.TO Talisman Energy Inc. 11.32 9.48 -16.25%
CMG.TO Computer Modelling Group Ltd. 12.46 11.68 -6.26%
CJR-B.TO Corus Entertainment Inc. 24.85 13 -47.69%
NWC.TO North West Company Inc. 24.29 27.12 11.65%
IGM.TO IGM Financial Inc. 50.64 36.24 -28.44%
CWT-UN.TO Calloway REIT 26.25 29.41 12.04%

The entire list lost –15.58% which is compared to the Toronto Stock Exchange decline of –12.16% in the period from August 15, 2014 to August 21, 2015.  The top five stocks on our list averaged a loss of –19.08% which is substantially more than the index.  Below we’ve outlined the performance of the watch list stocks compared to the analyst estimates.

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This is one of the best examples (so far) of the analysts being accurate about the estimated price change that we’ve seen so far.  Talisman, TransAlta, Dream Office REIT, Rogers Communications, North West Co. and Cineplex all came within reasonable distance of the projected targets or move in the stock price.  The remaining stocks that did not meet expectations failed miserably and in a directions that was highly unfavorable to investors.

Canadian Dividend Watch List for August 2015

Below is the list of stocks that we think are worth your consideration and due diligence.

In-Depth Analysis: W.W. Grainger

We came across W.W. Grainger (GWW) on  last week's U.S. Dividend watch list. At the time, Grainger traded down to its yearly low and on the surface appeared to be very intriguing. As such, we did some research and would like to share some findings. Continue reading

U.S. Dividend Watch List: August 14, 2015

The market was flat for the week as trading volume continued to decline. Although there was a good deal of chatter about the technical pattern know as the "death-cross", which is when 50-day moving average crosses 200-day moving average to the downside. The "death-cross" a bearish pattern that suggest a change in the trend. Only time will tell if this bearish indication will materialize. Until then, we will continue to search for good companies trading below fair value. Continue reading