China A50 analysis after soaring to a key resistance level

The China A50 index made a spectacular bounce on the first trading day of the month after the strong economic numbers. After crashing to a monthly low of 13,121 in February, the index rose to an intraday high of 13,550 on Wednesday. Other Chinese indices like the Shanghai index and the Hang Seng were also positive.

Strong China economic data

China is staging a strong comeback after it lifted its covid restrictions two months ago. Data by Caixin showed that the country’s manufacturing activity had the biggest improvement in more than ten years. The manufacturing PMI figure came in at 52.6, an improvement from the previous 50.1. It was also a stronger figure than what analysts were expecting.

These numbers are important because the February figure provides the most accurate reading of how the country’s recovery is shaping up. Still, some pockets of the economy are still struggling. For example, spending on key items like houses and cars has continued to wane in the past few months. 

The next key catalyst for the China A50 and Shanghai indices will be the upcoming National Party Congress (NPC) that kicks off on Sunday. In it, the China Communist Party (CCP) will deliberate on key issues and set the growth target of the year, as I wrote here.

Most China A50 constituents were deeply in the green after the PMI report. China United Network was the best-performing company, as its stock soared by more than 10%. It was followed by Midea Group, 360 Security Technologies, Hik Vision, China Pacific Insurance, and Ping An.

There is a high possibility that other western indices will do well because of China’s rebound. Indeed, futures data shows that the DAX, FTSE 100, and CAC 40 indices have are in the green.

China A50 forecast

China A50 chart by TradingView

The 4H chart shows that the China A50 index rose after the strong economic numbers from the country. As it rose, it approached the upper side of the descending channel that is shown in black. It has also moved slightly above the 25-day and 50-day exponential moving averages. The index has also moved to the 50% Fibonacci Retracement level.

Therefore, despite the comeback, the index remains in a downward trend as long as it is inside the descending channel. As such, buyers need to comfortably move above the upper resistance of the channel at 13,700.