In a brilliant misdirection scheme that only Keyser Soze could pull off, it may very well be that the issues in Europe and Washington D.C. are nothing more than red herrings that distract us from the real danger: A hard landing in China. We know that the Shanghai Composite has displayed all of the characteristics of a secular bear market since crashing in 2008 after an exuberant stock bubble. At issue now is whether we see a retest of those major lows down at 1,664.
As you can see on the weekly chart of the Shanghai below, 2,300 is an absolute monster of a key level to watch. You can argue that the slew of lower highs over there past few years (resistance trend line) has created a bearish descending triangle with a presumption of breaking lower. Should the China bulls lose 2,300, I suspect a test of the 2008 lows is inevitable. However, that is a big “if,” given how much price memory there is from the bottoming process in 2008 through the lows of 2010.
And that is another reason to continue to be an astute spectator of global equities with plenty of dry powder at your disposal.
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How would you play this one Chess?
Buy FXP or EEV, or is there another ETF?
Thanks
FXP if Shanghai loses 2,300.
Puts on FXI have been working for me – a small measure of revenge after seeing my neighborhood priced out of reach for several generations thanks to insane bubble blowing by Shanghai and Beijing types.
But hopefully that will reverse at full speed, too – it’s already begun to the downside, now the question is how fast and how low.
I suggested FXP, or YANG on Fly’s post “Something smells in China”.
Chinese RTOs that on are on fire HRBN SVM DEER