(Bloomberg) -- Investors should buy on any declines in Chinese stocks after a momentum indicator for the Shanghai Composite Index signaled a possible rebound, DMG & Partners Securities Pte said. The Moving Average Convergence/Divergence, or MACD, line, based on the equity benchmark’s average level during the past 12 and 26 months, last week climbed near its so-called signal line, based on a nine-day average. The signal to buy last occurred more than a month ago, according to data tracked by Bloomberg.“With the potential bullish moving average crossover looming on the MACD chart, we advise investors to adopt a buy- on-dips trading stance,” James Lim, a Singapore-based analyst at DMG, wrote in the report.
The Shanghai Composite has dropped as much as 24 percent from this year’s high on Aug. 4, and ended last week up 57 percent so far this year. The gauge has climbed 8.4 percent from the intraday low of 2,639.76 on Sept. 1, a rebound that should “translate into further gains for the index,” Lim said.The measure may first face resistance at between 2,980 and 2,995, the daily highs reached in the three days ended Aug. 27, the analyst said. The next resistance line will be at 3,146 to 3,150, the highs of Aug. 13 and Aug. 14, he wrote.In technical analysis, investors and analysts study charts of trading patterns and prices to forecast changes in a security, commodity, currency or index. Support is a level where buy orders may be clustered and resistance is where there may be sell orders.
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