Everyone is waiting on China.
The correction that started on May 6th after the mini crash that went unexplained, has been nothing but brutal. A good number of stocks have lost steam to the point the drops resemble the 2008 end of the year scenario. Only the leaders have remained strong, advancing yet slowly or at least stalling their advance but keeping their hard earned price levels. A quick look at the charts of NYSE percentage of stocks trading above their 50 DMA as well as the one for stocks trading above their 200 DMA, reveals the magnitude of the present debacle. Although some of it has already been worked out and many stocks have regained their footing, it is the 200 DMA that actually shows the depth of the problem with only 45% of stocks trading above this long term support. The shorter term chart says we are on the mend, whereas the one that displays longer term lines of support and resistance says there is a lot to be repaired.
Very deep correction. Is it over?
The divergence registered at the beginning of July, as per the NYA200R graphic, could be pointing to at a long lasting bottom, for now. Coincidentally, the China property index also seems to have registered a potential bottom at the start of July. Since then, this critical chinese index (China SE Shanghai property index / SHPROP) has been rallying together with the baltic dry index (BDI) both of which may be indicating a possible recovery -or better yet, a renewed acceleration- in China’s economy suggesting prices for real estate could be firming up and the appetite of the country for iron ore, coal and copper could be rebounding. If anything, the chinese property index has led all downturns and upturns for the last three years.
Meanwhile, the backbone of the global financial system is also looking up. Both TED spread and Libor-OIS spread have seen a peak on mid June and continue their march lower. Better short term funding conditions and narrower spreads indicate a healthier banking system, one where transactions among banks are trusted, which in turn can soften credit conditions elsewhere. So why all this gloom? And why there has been a steady rush into government bonds for the last couple of months? Maybe just politics? Noone can really answer this question as markets are comprised of a miriad of players.
Health of the chinese real estate market.
Investors, speculators and followers for the most part will all move in unison even when their motives differ sharply. Some may have gone into bonds only because the Federal Reserve has made clear that by purchasing U.S. Treasury debt they can influence interest rates lower (and have bond prices move higher) helping trigger a massive refinance of corporate and mortgage debt. Whereas others may have bought into the argument that the economy has not only stalled but is headed into another significant dip or worse. Either way, it is this array of conflictive signals that makes markets interesting and provides opportunities for financial gain for those who can see clearly.
Good call on China!
China continues to develop its physical infrastructure. From all china stocks, a great play is China Shuangji Cement, Ltd., a leading producer of high-quality Portland cement in Shandong and Hainan Provinces.
From the CEO himself “…with our anticipated new capacity, we forecast that our production capacity will increase approximately 66% over our current level once we are at full capacity with our net plant, which will result in a commensurate increase in revenues and net income. We are already seeing strong demand from local contractions and believe that our industry will continue to experience robust growth for years to come with many new construction and infrastructure projects supported by the government.” The symbol is CSGJ.
Here is my view… China has experienced somewhat of a downturn for the past years. Issues like chemical reactions on plastic wares, milk scandal, etc.. But according to recent news on the chinese stock market, it is even stronger if we look back to the very beginning of the market’s recovery in China last year. Some big companies that heavily lost in the market for the past years like China Life (LFC),China Petroleum & Chemical Corp. have made big come backs.
Now, China-based stock markets (and the entire Chinese economy) are moving strongly into recovery mode. Countries -and markets- around the world are still waiting on China!