Sunday, 23 January 2011

Credit Crunchy China

We start with China and SSEC. An interesting point that TMN would like to show is the symmetry, in terms of points gained, after the long holiday break in 2009 and 2010. As it can be observed in the chart, SSEC opened with a gap up and gained exactly the same amount of points in 2010 as it did in 2009. If the 2010 pattern unfolds similarly to the 2009 one, then we should see further losses on the index going forward.

Furthermore, liquidity in the Chinese markets seems to be giving alarming signals. The 1 month SHIBOR has been going up for some time now and is hitting levels that we experienced back in October 2007, when the US stock markets topped out.

Staying on the Chinese markets and taking into account that the Baltic Dry Index has been falling apart, makes TMN to believe that there is something brewing in China, its liquidity health, and demand for commodities.

Finally, divergences in the US stock markets are all over the place.

TMN's volume indicator is exhibiting a huge negative divergence similar to or even greater to the positive divergence at the beginning of 2009 that ignited the rally off the March lows. Looking at the more short term indicators, percentage of stocks above their 50/200 moving average and the NYMO the picture does not really change.

So what is really going on? Last week we saw the Spanish and the Greek stock indexes rallying like there is no tomorrow......and yes, TMN thinks that there may be no tomorrow for those two countries but on a negative tone and not a positive one as the indexes signalled last week. Maybe this was similar to the short squeeze the markets experienced back in September 2008 just before the Lehman Brothers collapse.
TMN also believes that municipality bonds will affect the stock markets sooner or later; and combined with the European sovereign problems and the apparent Chinese liquidity problem will lead to a very nasty outcome in the near future.

1 comment:

  1. The graph which is given here can be easily predictable by anyone. Therefore any one can easily interpret useful information from this graph and the chart.