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.
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.
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