China’s stock market is at a critical point.

It has been several weeks since we looked at China’s stock market. Back then, the Shanghai Stock Exchange Composite Index (SSEC) had just completed a bullish move off of oversold conditions. It reached the price target I pointed out one week before. And, I was willing to buy Chinese stocks if the SSEC pulled back towards the 2700 level – which it did in early October.

The problem is… the 2700 level did not hold up as support for the SSEC. The index collapsed all the way down to 2500 – a loss of almost 8% in just about one week. And, if you bought Chinese stocks based on my bullish prediction, you probably took me off of your Christmas card list.

Based on the action over the past two weeks, though, you might consider putting me back on.

The Chinese stock market, just like the U.S. stock market, has had a solid bounce off of its lows.

Unlike the U.S. market, though – which probably has another decline coming in the weeks ahead in order to complete its correction phase – the decline in the SSEC looks like an “exhaustive” low.

An exhaustive low occurs when a stock or an index breaks down even further from already oversold conditions. The move exhausts all possible sellers. It convinces the last remaining bulls to throw in the towel and sell. Then, once all of the sellers are gone (exhausted), a little bit of buying pressure can start a new uptrend.

That might just be what’s going on with China right now.

Here’s an updated chart of the SSEC…

After making an exhaustive low in mid-October, the SSEC has made a series of higher lows and higher highs. That is the definition of an uptrend.

The index is bumping into resistance near 2700 – which was the former support line. If the SSEC can rally above that line, then there’s no real resistance until about 2800. So, a break above 2700 could create a sharp, fast move higher.

On the other hand, if the SSEC turns back down from this resistance level, then it may fall back to the low established in late October – about 2550.

As long as the SSEC can hold above that level, then the current uptrend remains intact.

But a close below 2550 destroys the pattern of higher highs and higher lows. It would tell us that we haven’t yet reached the exhaustion phase, and China’s stock market is headed lower.

For the moment, this chart looks bullish to me. I’m willing to bet the SSEC rallies above 2700 and kicks off a new rally within the next two weeks.

If the SSEC drops back below 2550, however…all bets are off.

Best regards and good trading,

Jeff Clark

Reader Mailbag

In today’s mailbag, one reader responds to Wednesday’s Market Minute with their take on bitcoin’s future…

You have an expertise on reading charts, and you are probably right about bitcoin in the near term, but when looking out over a two-year time frame, you need to consider the mining reward halving in 2020.

Every 10 minutes, 12.5 bitcoin get added to the supply. Miners tend to sell the newly created bitcoins to pay their electricity costs. After the reward halving in 2020, that gets reduced to 6.25 bitcoins every 10 minutes. Assuming demand remains the same, but supply shrinks, the price has to go up a lot.

Look at the price action of bitcoin during the previous reward halvings, from 50 to 25, and from 25 to 12.5, where it is now. Look at the two-year periods, from one year before the reward halving to one year after the reward halving. I expect the same thing in the next two-year period surrounding the reward halving. I am pretty sure bitcoin will go well over $20K within the time period surrounding the reward halving.

The only risk I see is Craig Wright owns 1.1 million bitcoins, held in a trust for him, which releases in 2020. He may have already sold future obligations against those, which he will have to deliver when his trust releases.

– Vincent

What’s your take on bitcoin’s future? Do you think it’s going to shoot higher in the months ahead?

As always, send in your trading stories, questions, and suggestions to feedback@jeffclarktrader.com.