The Shanghai Composite Index (SHCOMP) will rally shortly after reaching a 2013 low this week, according to Tom DeMark, the founder of Market Studies LLC who correctly predicted a retreat in the Chinese stock gauge last month.
The measure of domestic Chinese equities will rebound once it falls below 2,232 on March 20 or 21, DeMark said by e-mail today. That would be the lowest level since Dec. 27 for the Shanghai Composite, which declined to as low as 2,232.13 today. The index gained 20 percent over December and January.
DeMark, the Paradise Valley, Arizona-based creator of indicators to show turning points in securities, said Feb. 6 that the Shanghai stock index would fall about 8 percent to within a range of 2,230 to 2,250 before rebounding. The gauge was down 8 percent from when he made the call to yesterday’s close at 2,240.02, as slowing manufacturing expansion to quickening inflation cloud the outlook for China’s economy.
We “are identifying a low-risk entry zone just beneath today’s low of the Shanghai Composite which should be a bottom prior to the resumption of the advance,” DeMark said by e-mail. “The Feb. 6 top was predicted and at that time the projection downside was for a correction that would terminate as low as 2,230.”
DeMark said Dec. 4 that the Shanghai Composite will climb as much as 48 percent within nine months. The 48 percent rally will be achieved before September, he said by e-mail today. The gauge has rallied 14 percent from the Dec. 4 close.
China’s central government tightened housing market rules March 1 to curb rising prices, spurring concern new leaders installed last week will order further restrictions. The world’s second-largest economy emerged from a seven-quarter slowdown in the last three months of 2012, as gross domestic product rose 7.9 percent.
The Hang Seng China Enterprises Index (HSCEI) of shares traded in Hong Kong has lost 6.1 percent this year and fell for a third day today, reaching 10,740.05, the lowest level since Dec. 4.
DeMark, who has spent more than 40 years developing market indicators, provided consulting to hedge funds including George Soros’s Soros Fund Management LLC and Leon Cooperman’s Omega Advisors Inc.
He is chief executive officer of Market Studies, which makes money by charging traders for access to its indicators. The company also sells subscriptions to the indicators on the Bloomberg Professional service for $500 a month. Bloomberg LP, the parent of Bloomberg News, takes a percentage. DeMark has a similar arrangement with Thomson Reuters Corp. DeMark won’t say how many subscribers he has.
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