How to Play China from the US

• Posted by Greg Harmon
• on November 23rd, 2010

We all know that what happens in China is important to the US stock market.  But it is so far away, and they are trading while I am asleep, how do I get involved to hedge my exposure?  The answer is simpler than you think.  Here is a chart of the Shanghai Stock Exchange Composite Index, SSEC.

SSEC

Notice how it had a major sell off from April until July , climbed back and leveled for August and September, and then rose into the middle of this month before falling hard.  Now compare this to the charts of West Texas Intermediate Crude and Copper.

WTIC

Copper

Can you see the resemblance in the charts for the last 9 months? It may not be evident immediately but the three charts have been very highly correlated over this period. Look at the chart below if you need further evidence.

This chart tracks the relative performance of the Shanghai Stock Exchange Composite Index, Copper and West Texas Intermediate Crude over the last 10 months.  The profiles are almost identical.  Over the last 10 months a portfolio of Copper and Oil could mirror the Shanghai Stock Exchange Composite Index.  If you think about it this makes sense.  China has been the growth story.  The raw materials for their growth have been Copper and Oil.  Keep this in mind as you sit in the US and trade US stocks.

Hat tip to @HCPG and @PaulWoll on StockTwits for the inspiration and discussion leading to this quick blurb.

(As always you can see details of these individual charts and more on my twitter feed and on chartly.)

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

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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