China Stocks Have Started a New Bull Run—If You Still Have to Ask, Here’s Why

Today’s post will be somewhat different as we shift our focus from fundamentals to technical analysis. Long-time readers know that we typically emphasize the former, and we’ve often discussed how China stocks require foreign fund flows to perform well and how investments must align with government policies. Currently, we have both factors in play—foreign funds are returning to China stocks, supporting the recent rally, while boosting the economy and the stock market has become the government’s top priority, as evidenced by a slew of new policies.

We’ve received many questions and concerns about whether this rally is another false start, especially given the significant pullback in China stock prices. Since the fundamental drivers are in place, we now turn to the charts to gather insights from price trends, or the lack thereof.

Before we dive in, let’s take a page from Stan Weinstein’s book, Secrets for Profiting in Bull and Bear Markets, where he introduces the concept of stage analysis. This framework helps us determine whether a bull market has begun for China stocks.

Below is an image of the stage chart, which outlines the general phases of a stock or index's movement. Stage 1 is the consolidation phase, where prices remain flat. Stage 2 is the bullish phase, which is our main interest. Stage 3 represents a toppish stage, and Stage 4 is the bear market.

It’s clear that China stocks have undergone Stage 4, marked by a steep decline over the past few years. The key question now is whether China stocks have broken out of Stage 1 and moved into the bullish Stage 2.