China stocks poised to extend gains

By CHUA KONG HO (China Daily)
Updated: 2010-04-06 10:06
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SHANGHAI - China's stocks are set to extend gains after the benchmark Shanghai Composite Index breached its 100-day moving average last week, according to DMG & Partners Securities Pte.

The Shanghai Composite advanced 3.2 percent last week to 3,157.96, the biggest weekly gain this year and higher than its 100-day moving average of 3,136.

The gain is "signaling that the index would continue to appreciate", James Lim, Singapore-based analyst at DMG, wrote in a report.

"Coupled with the Wave 5 of 5 that is currently at play, we believe that additional upside is forthcoming" this week, he said, referring to Elliott Wave Theory.

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The Shanghai index may rally to 3,255 before meeting a so-called resistance level, while support can be found at 3,050, represented by the measure's 50-day moving average, according to the report.

Elliott Wave Theory, developed by accountant Ralph Nelson Elliott during the Great Depression, postulates that market swings, or waves, follow a predictable, five-stage structure of three steps forward, two steps back.

Technical analysts observe price charts to forecast resistance levels, or ceilings restricting further price increases, and support levels, or floors limiting declines.

The trading patterns and prices are used to predict changes in a security, commodity, currency or index.

The Shanghai and Shenzhen stock exchanges were closed on Monday for a public holiday and resume trading on Tuesday.