Why What Happens In China When You Sleep Matters
Dragonfly Capital | Jan 10, 2014 04:58PM ET
The Chinese market is a tale of two markets. The local market is dominated by state owned or state supported companies at the top of the capitalization chain. These make it into the China ETF, (FXI), that you as a non-Chinese person can trade for your China exposure. But the Shanghai Composite, (SSEC), is a much broader index of smaller companies and a better reflection of their total economy. It also has had a very strong correlation with the S&P 500, (SPY), since the March 2009 low. The chart below shows the ratio of the Shanghai Composite to the S&P 500 on a weekly time scale. Notice the long channel running lower since late 2009. The ratio appears to to have a date with a full retracement of the move higher that occurred from 2006 to 2008. That was back when the Chinese were going to take over the world
economy and the Yuan would replace the Dollar as the world’s reserve currency. Hmm. Technically speaking, students of harmonics will notice that it has been tracing a bullish Butterfly which has a Potential Reversal Zone much lower near a ratio of zero. And with a glance at the bottom of the chart to see that the Shanghai Composite remains in a downward trend while the S&P 500 in a upward trend this does not seem unreasonable. A falling Chinese market is good for US Stocks. Check your phone or tablet before you go to bed and right when you wake up if want an quick assessment of the impact.
Disclaimer: The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Original post
Get The News You Want
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.