Author: Midhun Parameswaran

The CSI 300 fell 2.34% on lower and below average volume this week. The market was shifted to an Uptrend Under Pressure Wednesday with the number of distribution days decreasing to five. The index breached below the 50-DMA (5,140, +0.7%) on much higher volume, with immediate support at its 200-DMA (~5,060, -0.8%). Resistance lies at the converging 21-DMA and 100-DMA (~5,240, 2.7%) followed by May’s high at ~5,380 (+5.4%). Social retail sales in May, fixed asset investment from January-May, and industrial value added in May rose 12.4% y/y, 15.4% y/y, and 8.8% y/y, respectively. All three readings slowed from April, with the former two weaker than consensus. Electronics led the gains as chip shortages led to price increases. Automobiles surged, boosted by Huawei’s investment in intelligence driving. Energy and agriculture stocks declined sharply. We advise investors to stay cautious and disciplined following recent signs of weakness after the index broke below several levels of support. Be selective when adding risk and focus on quality stocks breaking out of solid bases. Avoid chasing highs in the volatile market.

The CSI 300 fell 1.09% on slightly lower and below-average volume this week. The market remains in a Confirmed Uptrend with six distribution days. The index was trading around its 100-DMA this week and breached below its 100-DMA and the rising 21-DMA (~5,250, +0.5%) on much higher volume Friday. Next support is at the 50-DMA (~5,140, -1.6%) and next resistance is at May highs of ~5,380 (+3%). May PPI rose 9.0%, hitting a 13-year high and beating consensus. CPI rose 1.3%, missing expectations of 1.6% but higher than April’s 0.9%. Social financing was RMB 1.92T, missing consensus of RMB 2.11T but higher than April. Incremental loans were RMB 1.50T while M2 rose 8.3% y/y, both beating consensus and April. Exports (US$) rose 27.9% y/y, missing expectations, but imports (US$) rose 51.5%, beating both expectations and April. Computer software rebounded and led the market as domestic-made software is expected to benefit from Huawei’s Harmony OS. The automobile sector gained, boosted by EV assembly companies. EV batteries and solar power stocks showed very strong momentum. The agriculture sector declined and lagged the market, mainly due to decreasing pork prices. Baijiu stocks retreated strongly after the recent rally. We advise investors to stay disciplined as the index is breaking below key support. Be selective in adding risk and focus on quality stocks breaking out of solid bases. Avoid chasing highs amid the volatile market. The China A-shares market will be closed Monday due to the Dragon Boat Festival.