Technical Trends: Emerging Markets Could Benefit From China Strength

The MSCI China Index is showing signs of a break out from a multi-year base in the form of a bullish cup-and-handle chart pattern, an indicator of future pricing1.  If this type of pattern executes the index may continue to climb higher over the long term.

The current pattern, which began in April 2015, took approximately two-and-a-half years to form its base, or cup. During November and December 2017, the handle became more visible (see chart). This January, the index price has remained above the 92 level for three trading weeks, signaling a bullish catalyst, and increasing the likelihood that the pattern executes to the upside, and the price continues higher over the long term.

Only time will tell if China’s bullish momentum will result in a continued move higher for the emerging markets as whole. However, as always, we note that it may be prudent to wait for further confirmation of these types of long-term trend reversals prior to investing, in order to help mitigate the risk of a false signal. Stay tuned to the LPL Research blog for future analysis of the emerging markets.

 

IMPORTANT DISCLOSURES

1 Technical analysts describe a bullish cup-and-handle as a continuation-type pattern in which the price consolidates into what resembles a tea cup, followed by a breakout in the form of the cup’s handle. Once the pattern is complete, the price is likely to continue to move upward.

Past performance is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.

The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security.

The economic forecasts set forth in the presentation may not develop as predicted.

Investing involves risk including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.

Technical Analysis is a methodology for evaluating securities based on statistics generated by market activity, such as past prices, volume and momentum, and is not intended to be used as the sole mechanism for trading decisions. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns and trends. Technical analysis carries inherent risk, chief amongst which is that past performance is not indicative of future results. Technical Analysis should be used in conjunction with Fundamental Analysis within the decision making process and shall include but not be limited to the following considerations: investment thesis, suitability, expected time horizon, and operational factors, such as trading costs.

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