Graham Summers’ FREE Weekly Market Forecast (China Cracking Edition)

China, as an
investment, is important for three reasons. They are:

1)   The
Chinese economy is believed to be leading the world into recovery

2)   The
Chinese stock market has lead the S&P 500 for years

3)   The
Chinese/ US monetary relationship

I’ve covered
#’s 1 & 3several times before and I’ll providing an update of my analysis
in tomorrow’s edition of Gains Pains &
Capital.  So today we’re focusing on #2.

The Chinese
stock market has been leading the S&P 500 for years. It bottomed a full
four months before the S&P 500 (November 2008 vs. March 2009) during Round
1 of the Financial Crisis.

Similarly,
China topped out a full month before the S&P 500 during the market peaks of
March/April 2010:

With that in
mind, we need to be highly sensitive of the fact that China’s stock market
peaked in November 2010. Meanwhile the S&P 500 (which is fueled every week
by Bernakne’s Dollar hatred) has continued to plow upwards as though nothing’s
happened.

This
situation has lead many investors to ask themselves: is China no longer a
market leader?

I’ll be
exploring that question in depth in tomorrow’s edition of Gains Pains &
Capital.  In the meantime, I want to point out that China’s
stock market looks to have just broken the neckline on a Head and Shoulders
pattern:

The downside
target for this pattern is 32/33, which represents a roughly 19% drop from
current levels.

However, be
warned that no investment simply goes straight down. Indeed, before we enter a
serious collapse for China, we’re likely to see it rally up to “kiss”
resistance/ its former neckline around 42. If it does “kiss” this line and fails to break above it, then we’re
likely to see some fireworks sooner rather than later.

Best
Regards,

Graham
Summers

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Comments

[steve from virginia]

I like this analysis. I also see Treasuries leading the S&P and crude oil.

The US crude market is reacting to murderously high prices and is off its high. The fireworks may have already started ...

[falak pema]

its time for a shampoo