Look Overseas – Chinese Market Nearing 2009 Lows

By Christopher Diodato

You can hear the same question across most media outlets.  What recovery?  Most world markets made their final top in August of 2011, right when the US had its credit rating downgraded.  Since then, America has been the only major index to continue to make new highs.  This could lead one to think that the recovery has reached a point of stagnation.

However, it gets worse.  The Shanghai Composite index looks like it never even had a recovery.  Here’s the chart.


Note the target of 1018 in the long term.  What’s the adage?  A mania always ends below the starting point?

So, why place importance on the Shanghai Composite?  China is an emerging market, and investing there is still a high risk/high reward situation.  The China 25 index is what some would call the “government monopoly index,” while the composite contains other, smaller, companies, and is therefore more representative of the health of the Chinese economy.

Essentially, it’s the riskiest index of a risky country, and therefore, it usually leads both market tops and bottoms.  So, when a sell signal is issued in this index, as it was when it broke 2100 last night, expect the rest of the market to follow through soon.

Happy trading!

Metrotrader (D) is one of the few practicing CMTs (Chartered Market Technicians) in the United States . The CMT certifies his knowledge of market timing and risk management approaches. He tends to look for broad market moves and take advantage of them with index funds. The strategy he principally uses is mostly quantitative, and, tested, and has avoided or capitalized on every major recession since the 1940s. He says the best way to make money is to avoid losing it in the first place.

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