China Life Insurance

09/20/06 08:38:15 AM

by Koos van der Merwe

In the movie "The Graduate," Dustin Hoffman's youthful character is given the advice of "Buy plastic." In contrast, in today's world, that advice might well be "Buy China."

Security: LFC
Position: Sell

Figure 1 is of China Life Insurance (LFC), which appears to be soaring to untold heights from a low of $28.60 in October 2005 to its present price of $76.90. How much higher can it go? With a recession being forecast for the United States as housing prices collapse, clever money appears to be looking for a home offshore, and with China, although still politically a Communist state, embracing capitalistic reform, more and more Chinese citizens will look to protect their families by insuring themselves and their assets. In its heyday, Insurance companies were the place to invest in the West, and they still are, even at current high prices. Investing in an insurance company in China is therefore a no-brainer.

But what does the chart say? Figure 1 is a weekly chart, and the wave count shown suggests that wave 3 is near completion, with wave 4 in the wings. Volume of the past few weeks has fallen below average suggesting that buying is drying up, and that a correction is imminent. A 5,35 oscillator is also showing a lower high as the price made higher highs, suggesting a divergence sell signal.

FIGURE 1: CHINA LIFE, WEEKLY. The wave count shown suggests that wave 3 is near completion, with wave 4 waiting in the wings.

Graphic provided by: AdvancedGET.

The daily chart (Figure 2) shows a similar wave count — that is, a wave 5 is near completion — but the Advanced GET program does not project a fourth wave target, suggesting that, possibly, the price could rise to the $87.62 projection. This is confirmed by the relative strength index (RSI), which is not yet at overbought levels.

FIGURE 2: CHINA LIFE, DAILY. Here's a similar wave count (that is, wave 5 is near completion), but a fourth wave target is not projected, suggesting that the price could rise to the $86.62 projection.

Graphic provided by: AdvancedGET.

Once wave 5 is completed and the share price starts to fall, it should fall to the fourth wave of lesser degree, namely somewhere between $50.60 and $66.30.

China Life is definitely a stock to watch as a possible investment once the correction is complete.

Koos van der Merwe

Has been a technical analyst since 1969, and has worked as a futures and options trader with First Financial Futures in Johannesburg, South Africa.