Chart of the Day – Tuesday, May 7, 2024

Stocks in Hong Kong pulled back a bit today.

But over the previous 10 days, more than 3 stocks advanced for every 1 that declined.

Every time that’s happened since 1997, it ended a bear market. pic.twitter.com/ZZFkmHj1Dz

— Jason Goepfert (@jasongoepfert) May 7, 2024

Today’s Chart of the Day was shared by Jason Goepfert (@jasongoepfert).

• China has seen a sharp rebound over the past two weeks. The Hang Seng Index finally cooled off today after surging +14.5% in just 10 days. Jason points out that breadth is also thrusting in addition to this momentum thrust.

• The 10-day Advance/Decline Ratio spiked above three for the first time since 2016. There have only been four other readings above three since 1997, and all four took place in the early stages of a multi-year rally.

• China also looks bullish from a contrarian perspective. According to another popular chart from @MacroCharts, short interest on the Large-Cap China ETF ($FXI) recently hit 50%. While that figure has come down, it remains significantly elevated.

The takeaway: China is exhibiting the telltale signs of a bottom. Breadth and momentum are thrusting, while sentiment remains aggressively bearish.