Parallel Listings And True Price Value by Daryl Guppy and Chen Jing
In the second part of this series we continue to look at the
differences in traders’ perceptions by analyzing stocks listed
in the Shanghai market and their counterpart listing in the
Hong Kong market.
Trends and their behavior provide an analysis of
longer-term market behavior. Chart patterns are a
reflection of trading psychology and provide a
range of high-probability outcomes. The patterns develop in response to traders’ perceptions of opportunity.
Although the link with fundamental developments may be
more tenuous, we would still expect to see a similar pattern
development in this parallel-listed stock. A range of different
patterns confirms the importance of psychology in determining
The Shanghai-listed Jiangxi Copper (Figure 1) shows a
complex level of trend behavior and pattern development
(note that all China stocks are shown with a China chart
display: red = up). Trendline B defines the trend break
starting in March 2007. This support line is broken in May
2007, and it provides a resistance point for the rally peak in
Trendline A is displayed for historical convenience. The
two starting points in January and February 2007 are not
confirmed until July 2007. This trendline is easy to plot
retrospectively, but in real time it is more difficult.
Trendline C is a much more definite trendline. Projected
from the starting point in July 2007, it can be used to manage
a trend entry in August and early September. However, it is fair
to conclude that trendline analysis is not the most effective way to define the trending behavior of
Shanghai-listed Jiangxi Copper.
Shorter-term trading opportunities are
not well defined with this method.