China's precise and forceful stimulus boosts key ASX resources stocks

Monday's China Politburo meeting marks a distinct shift in sentiment from the Chinese government away a softly-softly approach to steering the nation's economy. Instead, the readout from the meeting proposed adjustments which would be applied with "precision and force".

Beijing is responding to an ailing property sector, a trend towards saving over consumption, and an uncomfortably high youth unemployment rate which now stands at 23%. Moreover, the back-stop GDP growth target of 5% looks under threat after last quarter's anaemic 0.8% print.

Indications from the Politburo meeting suggest targeted monetary and fiscal stimulus measures are on the way, aimed directly at improving domestic consumption, increasing the demand for residential property investment, and easing the burden on heavily indebted local government agencies and private and semi-private enterprises.

Perhaps though, the most interesting item from thi week's rhetoric was an omission, that is of the phrase instituted by President Xi at the 2016 Politburo meeting, "housing is for living in, not for speculation".

The CSI China Mainland Property Sector Index rose sharply following the release of the readout from the Politburo meeting. The 6.8% gain on Tuesday was at odds with the prevailing long-term downtrend (dark pink ribbon). However, the long white marubozu candle, with it's high close relative to the day's trading range is an indication demand wasn't adequately met during the session. Indeed, at the time of writing, Wednesday 26 July, the index is up another 1.7%.

It is impossible from a two session move to infer the long-term downtrend is over, but such a juxtapositional shift of the magnitude witnessed during the last two sessions, along with a meaningful uptick in volume, can perpetuate at least a moderate upswing in the short-term trend.

Minerals prices have also edged higher in response to the Politburo news. Gains have been observed in base metals such as iron ore and copper, and energy commodities such as crude oil and coal. Australia has some of the leading minerals exploration and production companies in the world and they too have received a timely boost to their share prices this week.

Let's review the technical analysis outlooks of three major ASX listed resources companies which are well placed to benefit from any new measures aimed at stimulating the Chinese economy.

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h5 1. Fortescue Metals Group (ASX:FMG)/h5

FMG is one of the world's leading producers of iron ore which it sources from its three main mining hubs in North-Western Australia.

The FMG chart shows a well-established long-term uptrend (dark-green ribbon) and a healthy and growing short-term uptrend (light green ribbon). The price action shows higher peaks and higher troughs - a sign of increasing demand and decreasing supply in the medium term.

The candles are skewed towards those with white bodies and/or lower shadows. Such candles are commonly refered to as "demand-side" candles. These candles indicate excess demand in the system for a company's shares and are generally associated with further price increases.

The FMG share price is approaching 22-month closing high indicating a long-term breakout is near. I feel there is enough short-term momentum to seriously challenge for new highs.

I view the FMG chart as bullish, and therefore I am prepared to add some portfolio risk to FMG shares around the current price.