Monday, December 3, 2012

Question Marks...

Who is this Market Viewer? He tells me to "start trading now", and then goes on a 6-week vacation.... Sorry, I paid my dues. I do not have to trade the unpredictable, fiscal cliff-induced mess. One has to experience thinly-traded holiday chop to despise it. With this out of the way, let's look at something very important... I said "I will keep my hands warm" with random posts...

A year ago I voiced my concern about a slowing Chinese economy. Well, Shanghai Composite is sinking further below 2,000 and nobody is ringing alarm bells. It's like that's the least watched indicator. People will tell you how there are no foreign investors allowed, and it's all just a casino for locals. I am flabbergasted by what nonsense traders will come up with to discount SHCOMP below 2K, only days after they touted it when it held above that mark. Speaking of marks... The most respected market technician - Tom DeMark (whom I also deeply respect) - just slapped a 2,900 target on the index, saying that "it has bottomed, and the sellers are exhausted below 1,960, and that everyone is negative on it". But how can one be positive with lower lows and lower highs? Who the heck am I to go against God? But I will anyway. Just like in "Kung Fu Panda", my secret ingredient will have to outdo the guru's super powers. Mr. DeMark is using his proprietary indicators, 40 years in making, to come up with his prediction. I use simple support/resistance at 2K. If Index goes back above it on two successive weekly closes - you got green light. If it stays below it - you got red. My secret ingredient is - nothing, and is much older than 40 years. Not even mentioning the fact that local Chinese investors have no idea who Mr. DeMark is, and will probably lose his complicated thesis in translation and time zone difference.

A few more question marks.
First. So China has the new crew in charge - "The Magnificent Seven". I just had to do that one :) If you ask me, nothing has changed. The power is simply transferred, not relinquished, not diminished - same ole Politburo. They are flexing their muscle, doing that same old magic of manipulating the numbers. Magically, all PMIs are on the rise, exports are skyrocketing, and bank loans are shooting out of the cannon again. Can someone please tell me, how in the real world of economics, when China's three largest customers (Europe, U.S., and Japan) are slowing down, can their exports and PMIs rise?? If you can explain this one, you are a better closet economist than me.
Second. What is going on inside China is having a major effect on SHCOMP. The level of corruption is unprecedented. Amount of millionaires in Politburo is reaching new highs. Local investors are not stupid, they see what is happening around them. Shadow banking is a huge problem, with growing unpaid accounts receivable, never to be repaid I bet. Unsafe, unethical, and plain out fraudulent activities are on the rise. The newest breaking development is excessive level of chemical was found in Chinese liquor. Rule number one - do not mess with man's drink.

Folks, you cannot trade this index unless you are in China. So we, foreigners, are left with FXI. I just do not understand how longs like Doug Kass and Jim Cramer can dive into FXI and think that it will continue to disconnect from Shanghai Composite. FXI (which consists of largest 25 Chinese companies) will eventually succumb to the same fundamental valuation level of the medium and small Chinese companies. It is just a matter of time...

click on chart to enlarge

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