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  1. #11
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    Hmmmmm...it seems I'm not the only one to have noticed the Shanghai effect
    Article from todays MarketWatch
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    Craig Stephen's This Week in China
    May 23, 2010, 8:27 p.m. EDT · Recommend (1) · Post:
    The significance of China's slumping A-shares

    Commentary: Is this an indicator for U.S. stocks (and double-dip recession)?



    View all Craig Stephen's This Week in China ›
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    HONG KONG (MarketWatch) -- Hong Kong can be expected to catch up with last week's steep falls in equity markets after a public holiday on Friday. It was the huge sell-off in Western markets that made headlines last week, but was a preceding fall in Shanghai's A-shares an early warning?
    Analysts are now arguing that the Shanghai A-share Index is acting as a leading indicator for U.S. equity markets. United-ICAP say they have observed this since 2007, when the Shanghai market fell in advance of the Dow and also bottomed first in October 2008, while the Dow did not bottom until March 2009. This year, from its peak in April, the Shanghai market is now down 19%, while after last week's falls the Dow is down just 9%.
    Asian broker CLSA Securities makes a similar point in a recent strategy note: "The negative price action since late last summer in Chinese A-shares and Hong Kong-listed Chinese property stocks looks more and more like the key lead indicator for the global risk trade."
    Of course, thinking of China's stock markets as a leading indicator for global markets is quite a leap. While conventional wisdom is that equity markets are a lead indicator of economic activity, this is generally dismissed in China, where its stocks markets are considered irrational, with little correlation with the economy.
    This is explained by a market that is dominated by herd-driven retail investors and where the "smart money" of foreign institutional investors is largely locked outside. A-shares are still off limits to the majority of foreign investors, and the currency is also not freely convertible.


    U.S. Treasury Secretary Timothy Geithner's trip to Beijing for a meeting on the economy will be a key focus next week. On the agenda will likely be Chinese procurement rules and the Chinese currency. In Japan, traders will be watching to see whether deflation is taking hold.

    This year, the economy and the stock market again appear to be heading in opposite directions. China's first-quarter gross domestic product grew at 11.9%, yet this year the Shanghai A-share market has been one of the worst performers in the world, falling 23%.
    But perhaps China's stock markets are more important and rational than we give them credit for. Few would question the importance of China's giant economy -- but downplaying the importance of its equity markets may be foolish as well.
    China's contribution to the recent global economic recovery is well recognized, with the state rather than consumer spending driving growth. China played a leading role with its massive stimulus and infrastructure program and state-sponsored bank lending.
    Many now believe the revival in commodity prices, Asian exports and the new cycle of capex spending is down to China's stimulus. As Nomura wrote in recent strategy piece: "Investors are being betrayed by the fact this cycle commenced in China, flowed into developing markets, and then finally resuscitated growth" elsewhere.
    There is also clear evidence of China's stimulus translating into equity-market movement.
    An HSBC equity research note said that in November 2008, when China's government announced its 4 trillion yuan ($586 billion) stimulus program, the stock market began its recovery.
    It could be China's stock markets and investors are rational, as they recognize China's economy is uniquely policy-driven. Forget GDP growth numbers (which are widely considered to be unreliable) and instead, follow policy changes.
    HSBC also highlighted that this year, when the government announced an increase in bank-reserve requirements and property austerity measures, the equity market turned south on cue.
    Beijing's far-reaching grip on the economy means policy pronouncements can be particularly impactful. Nomura notes for example that for H-shares (mainland Chinese incorporated shares listed in Hong Kong), they consider over 75% to be policy-driven, counting those where the government directly controls prices, in addition to banks and property that are directly impacted by tightening measures.
    So the next policy move by Beijing is being carefully watched. Most still expect an interest-rate hike and for authorities to be satisfied the housing market has slowed down before easing off on tightening measures. The danger is, in a risk-adverse environment, pulling off a soft landing in the housing market has just become that much harder.
    The European debt crises will also give policy makers more to think about as the sharp drop in the euro makes China's exports more costly. The consensus still appears for no change in policy until the third quarter at the earliest. Nomura suggests the situation means investors will need to be patient before there is any turnaround in administrative measures by the Chinese government.
    More than ever, investors globally will be watching China's policy makers and its A-share markets. If we believe that A-shares are a lead indicator, they appear to be telling us that not only is China's growth not as strong as the numbers suggest, but that global growth too is also looking suspect. We can expect increasing discussion on whether we are now facing a double-dip recovery.

  2. #12
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    This latest rally attempt (broken back S&R 9900 / MA200 / 3 month downtrend) by the DOW is a watershed event at the moment.

    If the recent bottom is indeed a bear trap (attempting to lead into a bear cycle) and in reality it is still a bull market going forward then this latest rally has to keep going.

    If this latest rally peters out then the question has to be asked ..Is the DOW still following Shanghai?

    Note the low volume in this latest rally attempt.







    ALSO..Attached at the bottom... is the DOW blue / base metal index brown chart...this is just one of my leading warning signal charts I use...notice how a major Trend /S&R line change in the metal index precedes the drop in the DOW. It makes for a great SELL warning indicator signal as gives a day (or two) warning before the drop ( hard to see on my small sized chart..how can I make incredible charts larger???). It is not a leading indicator in the recovery buy zone but at this stage of an equity market cycle it can act as just another good confirmation indicator.
    I use the Copper index as one of my leading buy zone areas..but it only works best during the change of equity market cycles from bear to bull...for the other periods of the cycles it is not 100% accurate. (see Investor strategies in secular bear cycle thread)

    ..note how the DOW/Metal chart is indecisive at this moment.... the chart is unconfirmed and is still advising caution.

    Last edited by Hoop; 18-06-2010 at 12:10 PM.

  3. #13
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    Not a TA expert Hoop, but global governments have a beggar's choice in the matter long term...
    In the short term, sentiment prevails. As Buffet said, a voting machine (hard at work, as you can see) ...

  4. #14
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    Update

    Good News out from the USA...on the 17 Sept the S&P500, DOW, NASDAQ all broke upwards back into a bull trend...Is this good news for the rest of the Global Equity Markets???

    Nah.. they were the last of the 3 of the 4 bears. Chartwise they are lagging the rest.
    Will Japan the 4th bear follow? ...probably.

    In my previous posts I've mentioned that I have noticed that Shanghai seems to be the leader by about 2 to 3 months since the 2008 /2009 crash ...when Shanghai turned to custard and failed to come out of its then Bull market Correction in the last half of 2009 so turning into a bear cycle..it seems improbable that the rest would follow as although economic problems were plentiful the recovery seemed robust enough to sustain a bull market cycle for a number of years ...However global markets did follow Shanghai into a bear trend. Why should Shanghai be the leader ?.. I have no idea.

    So what is happening with Shanghai now?...It broke its bear trend back into a bull trend on 26th July and as predicted 2 to 3 months later the rest followed (see below)

    Shanghai Comp...26 July
    NZX50................1 Sept
    FTSE..................3 Sept
    All Ords..............10 Sept
    DOW..................17 Sept
    S&P500..............17 Sept
    NASDAQ.............17 Sept
    NIKKEI................Not Yet

    Other Global markets such as Germany India didn't suffer a bear trend South Korea is very bullish. However I had not mentioned these in my earlier post so I will continue to omit them unless they deviate away from the Global bullish trend.

    So is it good news from now on?....Well yes and No....No if we continue to use Shanghai as the leading indicator.

    Shanghai our leading Goldilocks has broken a trend line which looks very suspiciously like that this last 2 month rally has been nothing more than another Bear market sucker rally. However it is presently in a trading range and a sucker rally will not be confirmed until it breaks that 2565 support.

    The charts below show the leader at the top and the followers below...
    e.g All ords followed NZX this time ..NZX went bullish on the 1st Sept All ords followed 9 days later on the 10 Sept.
    .....All Ords and the S&P500 are tracking within 7 days of each other with the All Ords leading.
    On the DOW chart the vertical lines are explained as confirmed Bull or Bear trends








    Last edited by Hoop; 26-09-2010 at 12:55 PM.

  5. #15
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    Hi Hoop

    look at the US 30 and then look at this candle pattern ,,, anyway, bulls need confidence above all 'DO NOT DOUBT THY HELICOPTER ACTION'

    Kind Regards

  6. #16
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    ...another bullish set-up, developing lately:



    (emphasis here is on the 10-month simple MA not the regression channel)

    Kind Regards
    Last edited by ananda77; 27-09-2010 at 07:04 PM.

  7. #17
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    Good news update

    Quote from the 29-09-2010 thread

    So is it good news from now on?....Well yes and No....No if we continue to use Shanghai as the leading indicator.

    Shanghai our leading Goldilocks has broken a trend line which looks very suspiciously like that this last 2 month rally has been nothing more than another Bear market sucker rally. However it is presently in a trading range and a sucker rally will not be confirmed until it breaks that 2565 support.


    Shanghai Composite did not break down at the end of September it has ralled and broken out upwards out of its ascending broadening wedge/trading pattern type formation.. a bullish sign.

    The chart speaks for itself so no need for trend , S&R lines.

    For the gap watchers ...spooky ..huh

    So is Shanghai still leading ? ...Well, the other markets seem to in that flat patch that Shanghai has previously experienced (without the bear scare so far..yet to come?)... so.....perhaps Mid to late November may be looking real good for the NZX FTSE All ORDs. Early December DOW S&P500....lets predict then wait and see

    In the meantime lets go GAP hunting


  8. #18
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    Default Is Shanghai still the Global equity index leader?

    Quote Originally Posted by belgarion View Post
    Shanghai Composite off on a little rip-snorter of run ... What a beauty.
    Still snorting Belg...Snorted that much that everyone now knows it's a Bull now. Its just broken its primary bear trend adding another confirmation that it has resumed its Bull Market Cycle.
    .
    Last edited by Hoop; 26-10-2010 at 09:18 AM. Reason: rewritten

  9. #19
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    Well that Primary down trend break in October 2010 unfortunately was a fizzer (marked as an orange dotted line in chart below)

    It's confirmed (breakout) Goldilocks is really a bear.

    For a while last year the Shanghai Composite showed bearish tendencies but the break upwards in October 2010 and the established up trend gave hope that the market just had an unusually long bull market correction. Well... yes, it was a big breather, but remember it had galloped from the base line of 100 in Mid1991 so this type of correction is plausable.....but.. unfortunately TA charts is saying there is a good chance the answer is no. It now looks like it was a 9 month sucker rally...time will quickly tell if this breakout yesterday is real or a bear trap, but the odds of it being a bear trap seems low.

    Shanghai Comp Index has 872 companies. It has this distinct Bear Market look about it and this must be a worry Globally because China is No 2 in the world and can not be ignored.

    Quote from The Spreadbet.com .."It is also widely held that, increasingly, the Shanghai Composite Index will accurately reflect China’s economy as a whole, but certain large state organisations in key areas such as healthcare and energy are yet to go public. ...."
    So is the Shanghai Comp index a reflection of China's economy? OK, from the quote there is still doubt ..but if it is true, then China has economic problems and this must effect its neighbours, Australia and other countries relying on commodities exports.


  10. #20
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    A ( THE ) Biggest exporting employer of labour in China was removed from the Hang Sen today..

    What does that tell you Belg ??

    " The times they are a changing ".. IMHO..

    Where now ??..

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