China’s “Healing” Equity Markets: The New World Market Leader?

Despite the overload of streaming bad news and pessimism, few have noticed that prior to the “recovery” or “bounce” (depending on the bias of the observer) in the US markets, China’s market has been gradually stabilizing.

courtesy of stockcharts.com

The red arrow shows China’s Shanghai index in a seeming recovery mode (from late October) even as the US S&P have touched a milestone low (blue arrow) in mid November.

To consider, during the advent of today’s bear market, China’s Shanghai index have turned lower almost simultaneously with other Asian benchmarks despite the limited exposure to foreign investors.

And to further allude that China’s Shanghai has suffered the most pain compared to the neighbors after losses tallied to 70% at its nadir.

While it is arguable that today’s recovery may simply be representative of a mere bounce, technical picture appears to indicate otherwise.

The Shanghai composite has broken the bearish year-to-date trend line (pink) aside from the 50-day moving averages (blue) which may point to a segueing to the market cycle process known as a “bottom”.

Of course since today’s global trade structure has put a lot of weight into China…

Courtesy of nationmaster.com

China could signify as a huge driver in shaping the global economy and markets.

And as the region increasingly integrates, this probably would imply for a regional recovery.

So we should probably keep watch with some of the key Asian indices as Japan’s Nikkei. Japan's major benchmark appears to be on its way to test its resistance levels at 9,500 and the 50 day moving averages to corroborate China’s seeming transitioning phase.

And because China in the recent past had accounted for an important consumer for commodities, then we might also add that for China’s bottoming process to be further confirmed, we need to see an equivalent turn in commodity prices as in copper, oil and other base metals, something that has, as of the moment, been missing.

Will China lead the next phase of the market cycle?

Stay tuned.

A Critical Week for US Markets? Will A Bottom Be Forged?

A “Bottom” is an indispensable part of the market cycle.

It doesn’t translate to the popular impression of fantasizing about identifying a precise low, which should be the work of tarot card readers.

It means that bottom as a cycle involves time process.

Of course, it is a truism that bottom can always be seen from the privilege of fait accompli.

But in looking forward, anticipating a market bottom can be assessed from valuations view point (example below)…

Courtesy of Bespoke Investment

or from sentiment…

Courtesy of stockcharts.com

or from technical formations or patterns such as W,U,V or other variations based from historical performances...

Courtesy of US global Investors

Courtesy of US global Investors

Courtesy of US global Investors

or a combination thereof.

Remember, there is no simplified answer, formula or a Holy Grail for this.

This also means anticipating market bottoms can also be construed as a bet based on probabilities: that in considering the tradeoff between risk vis-à-vis return, the estimated returns should vastly outweigh risks given an expected time horizon regardless of the day to day activities reflected in the tape.

Courtesy of US global Investors

And perhaps US markets could have been attempting to forge a bottom, where the critical landmark for either a success or failure of market’s attempt to its floor could be shaped or determined over the coming sessions (days or weeks) by virtue of market action.

According to John Derrick of US Global, ``History shows that three-quarters of the retesting events occurred within 44 days of a bottom, so if the October 10 low in fact marked a bottom, a retest (which could create a new low) should be expected prior to November 23. The longest span for retesting a low was 104 days in 2002. A repeat of that extreme case would schedule the retest for January 22, 2009.” (highlight mine)

Of course any successful recovery from the repeated retests of the October 10 lows could also translate to an interim bottom more than the “THE” Bottom.

Although again bottom as a market cycle, like wine, ages with time.

But for the meantime market action says: Fasten your seat belts.