CHART OF THE DAY: CHINESE STOCKS BREAK-DOWN

The Shanghai equity market has served as an important indicator of the equity market over the last 5 years.  As we all know, China is the fundamental driver of much of the commodity growth and economic growth in the global economy.  In January I penned a piece titled “The tail that wags the dog.  In it I said:

China led us into this recession and it’s likely that China will lead us out.  And after a 70%+ decline, China’s not looking like a bad long-term bet to me….

As a leading indicator, China appeared to be bottoming and looked quite attractive.  Surprisingly, U.S. markets have had a tendency to turn a blind eye to the moves in the Chinese equity markets.  Nonetheless, the Shanghai market led the downturn in 2007 and once again led the recovery in late 2008 and early 2009.  The U.S. equity markets lagged by several months.

Since the August peak in the Shanghai the U.S. equity markets have essentially moved sideways.  Today’s chart of the day shows the uncanny technical importance of the 50 and 200 day moving average in the Shanghai market.  Both have served as very important level throughout the last year.  Last night’s breakdown thru the 50 day moving average could prove to be reason for near-term concern.  In all likelihood, the easy money in China has been made as the post bubble churn begins:

SSEC

-------------------------------------------------------------------------------------------------------------------

Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

More Posts - Website

Follow Me:
TwitterLinkedIn

Comments

  1. Look at Hengseng, forming a massive exhaustion pattern over last a few months. confirming bearish stance of Shanghai. With near hyperinflation type of money and credit growth, SSEC can’t even recover 50% of its loss. Jim Chanos’ thesis looks more convincing every day.

  2. TPC, I would suggest that you read Martin Armstrong’s latest piece. It’s all about capital flows. I truly do not think the emerging/Asian markets are done. Capital will flee from the first world nations as their debt explodes.

    China, Brazil, Vietnam, Indonesia, etc., etc., all look good. Check out PCY – 6.2% divvy.