Chinese stock indices powered on without HK’s influence (due to a national holiday there) with the China A50 piecing above its April high of 14,450 and gaining almost 3%, to a new high of 14,680 at one stage. 49 out of the 50 member stocks saw green on the screens, with only one name registering a marginal decline. Key industrials, including transportation names, led the way, with several achieving a move up of 10% for the day. This is a powerful break up and has come despite several calls for a bubble there, including those from this analyst. However, the strong rally yesterday should not be ignored as it would set the index for a higher move, to its next resistance of 15,160 and possibly as high as 16,000 if we are able to see momentum and follow through over the next days. On the other hand, should this represent a final capitulation phase of this leg of the rally since the beginning of March, this could also show up as a false break if the China A50 pulls back below the 14,450 level. Support could be at the 13,740 level and then the May low of 12,840.
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