CAF Begins Anticipated Move

On Wednesday morning, Morgan Stanley China A Share Fund (CAF) gapped up to an 18-month new high, prompting us to add it as a model portfolio position at 25.60. The stock appeared poised to break out from a massive base/accumulation pattern that projects to a minimum upside target zone around 28 and an optimal target at 30-32 thereafter.

Although the China PMI data show improved economic performance, my sense is that the strong price action in the Shanghai Composite, the FXI ETF, and the CAF reflects anticipation of a powerful technical upside breakout.

Should CAF continue higher, confirming the breakout, then at some point in the near future, we should expect confirming fundamental news, or an improved back story, that justifies or explains the technical strength.

CAF closed Friday at 25.93.

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