Let’s Crush the Chinese Market!
- Posted by Greg Harmon
- on March 19th, 2013
Worried about the weakness in the Chinese economy dragging the US lower? Stop! Although it may be popular water cooler economic theory, thinking that if the Chinese market is weak then the US market will be weak just does not show up in the price record. Below is a ratio chart of the Shanghai Composite ($SSEC) against the S&P 500 SPDRs ($SPY). A very fast move higher from 2005 to the end of 2007 was interrupted by the financial crisis. Then, since the US market lows in March of 2009 there has been a steady flow of the ratio lower in a channel with the 50 week Simple Moving Average (SMA) acting as resistance on any and all bounces. The last bounce, a double tap on the 88.6% Fibonacci retracement of that upward movement, was rejected 5 weeks ago at that
same 50 week SMA and is heading back lower again. The Relative Strength Index (RSI) in the upper frame, a measure of the strength of the move continues to show it heading lower. In relative terms this is a flow from the Chinese Market to the US Market. We know that the relative change can happen in many ways. One market can stand still while the other moves. Both can move in the same direction, but one faster than the other. Or they can move in opposite directions. I have put each Index at the bottom of the chart for you to see which way it has been working since the downturn 4 years ago. The Shanghai Composite has been falling while the S&P 500 has been rising. Now, are you still worried about a weak Chinese market?
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Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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