China is Still Worse Than the US, and that is Not a Good Thing

The Chinese and US markets have been a bit shaky the last few months, but do you know which has been better? Back in April we looked at the relationship in The China US Relationship Has Room to Move Lower and saw that there was room for the ratio of the Shanghai Composite, $SSEC, to the S&P 500 SPDR, $SPY, to move lower. Since then the ratio has moved up a bit off of the descending channel then reversed and is moving lower again, near a full retrace of the 2009 to 2010 up move, as shown in the chart below. The $SPY is strengthening against the Shanghai Composite. China is weakening against the US market. What ever pundits say about the Chinese Government making up their economic statistics, or the US being on the verge of, or in, a recession, the price action (read: facts) show that the US Market is strengthening against the Chinese Market and has been doing so for 3 years. What’s more, this trend shows no signs of stopping, much less reversing. The price trend is down, the Relative Strength Index (RSI) is bearish and moving lower, the Moving Average Convergence Divergence indicator (MACD) is about to cross negative. These all point to a continued move lower in the ratio. At current levels a move under 15.74, the full retracement of the 2009 to 2010 move, shows support next at 13.60 and then 12.50 on the way to a knock out punch at 9.50.

Yes there is a trade in that chart long the $SPY against the $FXI, but there is a whole lot more as well. With statistics on the US economy getting weaker, if you are a believer in the stock market’s ability to look forward, then the Chinese market is in very bad shape. With so much of our economy intertwined with that of China are we heading toward a downward spiral?

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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 Disclaimer page for my full disclaimer.

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