Awakened Dragon: Chinese stocks are back in bull market territory

After declining for the better part of the last three and a half years, the Chinese stock market has finally woken up a bit. Since reaching a multi-year low on the first trading day of December, China’s Shanghai Composite is now up 21.56% on a closing basis, which puts it in a fresh new bull market. The gains in the Shanghai Composite have begun to turn its moving averages around as well, and as long as the index doesn’t collapse over the next couple of trading days, it will experience the elusive “golden cross.”

The golden cross is thought to be a bullish technical formation, and it occurs when the 50-day moving average crosses above the 200-day moving average as both moving averages are rising. While not a perfect technical indicator, it has historically been a good predictor of prices for quite a few indices. But how about for the Shanghai Composite?

There have only been six prior golden crosses for the Shanghai Composite going back to 1990, and below we highlight the index’s performance in the week, month and three months following these six events.  As shown…