“Dear David, Thank you for your service. I note your recent decision to open a long in the H Shares index. You have consistently mentioned that the best time to enter longs is after mean reversion to the 200 day moving average, however the H Shares index is still considerably above the 200 DMA, and I wonder why you felt confident in opening the long here. Best wishes,”

David Fuller's view

I am delighted that you appreciate the service and thank you for a very interesting question, certain to be of interest to a number of other subscribers.

In the comment which you summarise above, I was referring to trending markets, of which we see many in a bull market.  Therefore in context, if you are adding to a long position in a trending market, the best time to buy it is following an orderly reaction to the rising 200-day (40-week) MA.  If you look at the left-hand side of this weekly chart of the H-Share Index (HSCEI), you can see that reactions to the MA from 2005 through mid-2007 provided good entry points, although I personally was not trading it at the time. Thereafter, it accelerated dramatically to a bubble peak in 4Q 2007.  

HSCEI had been largely rangebound since 2010, although it had been gradually edging higher within that range since mid-2014.  That provided evidence of demand gaining the upper hand relative to supply, enabling me to anticipate an upside breakout and establish trading long positions either side of 12000.  Shortly following the breakout which ran above 14000, I decided to take my trading profit in the H-Shares Index because it was temporarily overbought and volatile.  I replaced one-sixth of my earlier trading position when the Stochastics Indicator evident in this daily chart was oversold.  I did not buy more because it is still consolidating recent gains; it will take time for the MA to catch up.   and I am going on holiday tomorrow.  Thereafter, I may buy a little more HSCEI as it is still reasonably cheap with a p/e of 10.28 and yield of 3.03.  

Lastly, in answer to the email I have been discussing trading opportunities in the paragraph above.  China is also my second largest personal investment position, mainly via the JPMorgan Chinese Investment Trust (JMC LN), since last December.  Having become quite overextended in early April, it is now back to a more interesting level and with the MA rapidly catching up.  JMC currently sells at a discount to NAV of -13%, according to Bloomberg.