A50 rips higher on mortgage rumours, downtrend under threat

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Media reports suggest Chinese authorities are considering allowing homeowners to refinance up to $5.4 trillion in mortgages at significantly lower interest rates, providing the type of circuit-breaker that could boost consumption and reverse the downturn in the property sector. While it’s not the first time we’ve seen speculation over measures to boost flagging economic growth, for now, Chinese stocks are flying.

China A50 futures are threatening to break the downtrend they’ve been sitting in since the latter parts of May, staging a dramatic turnaround on Friday after closing at multi-week lows on Thursday. As the chart shows, a break of the downtrend could be significant for a market that has tended to trend nicely once a technical turning point has occurred.

Should we see futures break and close above 11900, a horizontal resistance level just above the downtrend where the 50 and 200-day moving averages are also found, consider buying the break with a stop below either level for protection. The obvious trade target would be 12352, a level that has acted as support and resistance earlier this year.

You could also flip the trade should futures be unable to break higher, selling below the trendline with a stop above for protection.

Good luck!
DS