The news about the Sino-American trade war seems to get worse every day. Callum Thomas pointed out that corporate managements are increasingly raising concerns about rising tariffs.
Chinese stocks have cratered, along with the stock indices of China’s largest Asian trading partners. However, a couple of contrarian buy signals are appearing. First, trade tensions are now showing up in the one place that you might expect, FX volatility.
As well, Chinese and other Asian markets are washed-out and poised for relief rallies, which would also be supportive of higher global equity prices.
Poised for an oversold rally
From a technical perspective, Chinese and Asian markets are showing signs of a turnaround. The Shanghai Index recently flashed a buy signal when the stochastic recovered from an oversold condition, which was supported by a positive RSI divergence. Chinese share prices fell Monday because of softer than expected economic data, but such conditions may present as an ideal entry point.
The Hang Seng Index in Hong Kong also exhibit a similar pattern of positive RSI divergence and stochastic buy signal.
The South Korean KOSPI also flashed a stochastic buy signal.
The same goes for the Taiwan market, which is important as it is a bellwether for the semiconductor industry.
I could go on, but you get the idea. In short, the stars are lining up for an oversold rally in China-related plays. After all, how can you not buy when pictures like this one goes viral?