China - Market Direction 01 (May 12 - Jul 15)

[winston]

China: Market Analog to the 2003 US Market by Robert Sinn

I’m not a huge fan of market analogs, however, it must be said that the market rhymes often enough (although it rarely repeats) that it is worth pondering charts of different markets during similar macroeconomic environments.

We are all fully aware of the China hard landing fears and that Chinese equities have been in a bear market since topping out in late-2007.

The current situation in China is reminiscent of the US markets following the dot-com collapse and recession of the early 2000s – the US unemployment situation did not bottom until June 2003 but markets are forward looking and the S&P 500 had already begun to price in the turn in the economy and the Federal Reserve’s easy monetary policy well before the employment numbers turned higher:

Could Chinese equities have begun to look forward to the economic turn and more PBOC policy easing?

The inverted head & shoulders stands out prominently with a slanted neckline that goes back to the June 2011 low.

Finally, notice that the S&P 500 moved back above its 200-day SMA in April 2003 – a huge rally ensued over the next two months.

The Shanghai Composite recently moved back above its 200-day SMA for the first time since May 2011, remember, rhyme but not repeat…..

http://www.robertsinn.com/2012/05/09/ch ... us-market/

[winston]

DJ MARKET TALK: Citigroup Argues Case For "Being Brave"

1342 [Dow Jones] Citigroup says "gloom is all around," and it could get worse, which is why sentiment is now worse than in October 2011.

"Yet, unless catastrophe is lurking, this could be the very time to be building equity exposures."

The house says valuations imply negative EPS growth rates to perpetuity, a degree of market distress seen only during SARS and in 2008; from these levels, markets historically have rallied 70% of the time, delivering average 12-month returns of 22%.

On China, Citi says the market "is at a crossroads in which cyclical policies are running out of steam and structural policies are yet to rise;" it expects the market to be volatile but heading in a positive direction, and prefers sectors sensitive to interest-rate and cyclical policy moves (e.g., property, capital goods, transportation, insurance, and yield), and stocks with cheap valuation and solid earnings.

Source: Dow Jones Newswire

[winston]

Is the whole world in China’s hands right now? by Chris Kimble

Last May the chart above reflected that the Shanghai index was breaking below a multi-year flag pattern and the Power of the Patterns suggestion was to protect assets (see May 2011 post here)

Since the flag breakdown, Commodities and global stock markets have been very weak. Harvesting or protection of assets has paid off handsomely in the past year!

Below is an update to the above chart...

The whole world was impacted by the breakdown of the Shanghai index a year ago and what the Shanghai index does at (2) in the above chart is just as important as it was a year ago!

http://blog.kimblechartingsolutions.com ... right-now/

[winston]

Why Funds Are Bullish on Chinese Markets By Stan Luxenberg

NEW YORK (TheStreet) -- Chinese stocks have been clobbered lately. While the Standard & Poor's 500 gained 5.7% in the past year, China funds lost 20.2%, according to Morningstar.

The trouble can be traced to signs that the booming economy may be slowing.


http://www.thestreet.com/story/11582226 ... L_wal_html

[winston]

Another Sign of Trouble for China's Stock Market By Jeff Clark

China bulls look out. There's trouble brewing in Shanghai… again.

It has been just over a year since we last took a look at the Shanghai Stock Exchange Composite Index. Back then, the index had just broken down from a long-term consolidating-triangle pattern. That was a bearish development, and we figured the Shanghai Index could be headed as low as 2,200 or so later in the year.

Sure enough, the Shanghai Index tagged 2,200 last December. It has been rallying since then. And today, it's 6% higher than where it started the year.

But it's unlikely to hold on to those gains. Take a look at this chart…

Here we go again…

The Shanghai Index has broken down from another consolidating-triangle pattern. While the index may bounce back up in the short term and test the former support line of the pattern, the break down is quite bearish.

It projects a price target of about 2,000 for the index. That's a 13% drop from current levels – just above the financial panic low of 1,800 back in 2008.

If you're bearish on China, you should use any rallies back up toward 2,350 to establish short positions. Buying shares of ProShares Short FTSE China 25 (YXI) is one way to establish a "short China" trade. YXI is designed to move in the opposite direction of China's stock market. So as Chinese stocks fall, YXI goes up.

But if you're a China bull, you may want to close your eyes for the next few months. It's about to get even uglier over there.


Source: www.growthstockwire.com

[winston]

Joe Friday….Shanghai Index is attempting to break below another Flag/Pennant pattern! by Chris Kimble

13 months ago, the Power of the Pattern reflected that the Shanghai index was breaking below a multi-year flag/pennant pattern at (1) in the chart above, reflecting that global softness/contraction should take place (See post here).

The portfolio construction message per the breakdown a year ago...reduce risk exposure!!!

Now this key index is attempting to break below another flag/pennant/support line at (2) in the above chart.

http://blog.kimblechartingsolutions.com ... t-pattern/

[winston]

A Chart Every Trader Should Watch By Amber Lee Mason and Brian Hunt

Regular Stansberry & Associates readers know that China is at the center of a huge debate.

Some very smart people – like master short-seller Jim Chanos and top hedge-fund manager Hugh Hendry – say the country is a powder keg of government-directed malinvestment.

On the other hand, you have the China optimists, like popular investor Jim Rogers. He and other China bulls say these fears are overhyped and overblown.

As traders, we're keeping a close eye on this debate. China is the world's workshop… and its largest consumer of commodities. If China has a big problem, the whole global asset market has a problem.

And it looks like the whole global asset market might have a problem…

When China bears make their arguments, they point to the hundreds of billions of dollars China has spent on unused infrastructure projects and real estate developments.

They also point to China's trillion-dollar-plus "shadow banking" sector. This "shadow banking" sector goes unreported in government numbers… But bears say it helps mask a giant amount of bad loans in China. They say it's "the Next Subprime."

And right now, they're pointing to the Shanghai Composite Index…

The Shanghai Index tracks the biggest and most important public companies in China. You can think of it as the "Dow Industrials of China."

As you can see in the 18-month chart below, the Shanghai Index suffered a big decline in late 2011. The index fell from a high of around 3,000 to a low of around 2,200 (a 26% drop). Then, early this year, it attempted to rally off its lows.

But as you can see from the right side of the chart, this rally has failed. After trying to break out to the upside in May, the Shanghai Index has fallen apart… It's now close to breaching its yearly low.

As always, we say, "Understand both sides of the debate… but always mind the market. The market is the judge, jury, and executioner of all ideas."

The market, in this case, is starting to side with the bears. Should the Shanghai Index continue to break down, it's a sign caution should rule your financial decisions.


Source: www.growthstockwire.com

[winston]

CHINA'S UGLY NUMBER by Brian Hunt

China is approaching an ugly number…

Regular DailyWealth readers know that China is the center of a great financial debate. Some world-class investors, including Jim Chanos, say the country is a powder keg of government malinvestment… which will cause a huge economic slowdown.

On the other hand, you have many "China bulls" who say the bearish arguments are overblown and overhyped.

What happens in China has a huge effect on your portfolio. China is the world's workshop, and one of its largest economies. It's also a voracious consumer of commodities like crude oil, iron ore, and copper. When China has problems, it sends stock and commodity prices lower.

You can track this situation with the Shanghai Composite Index. It's like the "Dow Industrials of China." As you can see in the chart below, this index has made a big move lower over the past few years. Early this year, the index tried to form a bottom and rally.

This rally has failed… And the Shanghai Composite is now close to registering a multi-year low. If the previous low around 2,200 (A) is violated, it's a major warning signal.

Source: www.dailywealth.com

[winston]

This Is The China Chart To Watch by JC Parets

Decision time for China. The Shanghai Composite is testing long-term trendline support that goes back to the mid-1990s.

Resistance up top is a trendline down from the euphoric highs of 2007. So we’re essentially at the apex of two converging meaningful trendlines.

This is a logarithmic scale weekly line chart of the benchmark Shanghai Composite:

The current prices are near the 2001 highs, right before the Shanghai Composite got cut in half. There is memory at this price. That former resistance adds additional support at these levels.

The consequences of a breakdown below long-term support would really be damaging to this chart, and paints a poor picture for China.

But I think there is an overwhelming amount of support where the higher probability move is a bounce. And a breakout above an almost 5-year down trendline could be explosive.

So as you can see, there’s a lot going on right now in this China chart. And I think it’s important to at least stay for the outcome.

Regardless of what asset classes you own, this is probably going to have an impact.


http://allstarcharts.com/this-is-the-ch ... -to-watch/

[winston]

Chinese Stocks

Jeff Clark was right on China…

About three weeks ago, Jeff told Growth Stock Wire readers how the "Dow Industrials of China," the Shanghai Composite Index, was set for a substantial decline.

Back then, the index sat just above the 2,300 level… not far from its multiyear low of 2,148. Jeff expected Chinese stocks to sell off hard… and breach its lows.

So far, they've done just that… The Shanghai Index has fallen to 2,175 since Jeff's essay. As you can see from the chart below, it's dangerously close to its multiyear low…

Jeff expects this index to go even lower… So traders can consider shorting Chinese stocks. But more important, Chinese stock prices are confirming the nation is experiencing at least a short-term economic slowdown… or even worse, the "hard landing" many people – like brilliant hedge-fund manager Jim Chanos – have predicted. In the "hard landing" scenario, commodity prices would get crushed. Stocks would suffer a big correction.

We can't predict the future… We can only stay prepared for potential risks. That's why we encourage readers to monitor "China sensitive" indexes and securities, like the Shanghai Composite – which tracks the movements of all stocks traded on the Shanghai Stock Exchange.

Should this index suffer a substantial drop over the coming months, it's a bad sign for China… and a sign to stay very safe with your investment portfolio.


Source: Growth Stock Wire