China is now at a key juncture, says John Nyaradi, and moving averages may offer definitive signals traders and investors can use to go long or short the emerging giant using select ETFs or put options.
China made the news last week when first-quarter GDP growth slowed to 8.1%, missing analyst estimates and logging the slowest growth in three years. While most analysts expect a soft landing, the figures indicate the ongoing possibility of a hard landing, and US stock prices responded to the news with a sharp downturn late in the week to close out what was the worst week for the markets in 2012.
Then, over the weekend, China announced that it is expanding the band in which the yuan can trade against the US dollar from 0.5% to 1% in an attempt to battle the slowdown and perhaps make China’s exports more competitive on global markets by making them relatively cheaper than the country’s competitors.
The GDP growth number was significantly lower than the fourth-quarter 8.9% expansion, and overall, fixed investments were up 19% compared to 24% the year prior.
Exports also slowed to approximately 7% compared to the usual double-digit growth as Europe and the United States saw their economies slow and imports from China decline.
Finally, the China real estate market continues to cool, and many suspect that a bubble in that asset class is slowly deflating, as sales declined about 15% year over year.
The news has not been lost on the Shanghai Composite Index, which is down some 20% since last spring.
In the chart above, we can see how the index has been in steady decline for nearly a year. It bottomed at the beginning of 2012 and is now trying to make a comeback; however, Shanghai still faces significant resistance ahead as it tries to reclaim its 200-day moving average.