We noted last week the coincidental surge in China's currency and stock market [4] (bettering US equities for 2014) after they quietly unveiled QE-lite [5], but, as Bloomberg reports [6], Tom DeMark says "selling into strength is now recommended," with losses expected over the next six months. This follows his prediction from June that China's Shanghai Composite was due for a recovery, presaging a 16% rise. With last night's hint of China's credit impulse fading [7] and CNY now recoupled with its fixing, perhaps he is right that the short-term catalysts for gains are exhausted. As DeMark concludes, "the trend is your friend until the trend is about to end."
A reminder of the driver of China's recent strength...
[8]
The Shanghai Composite Index will probably end its world-beating rally within days and fall about 10 percent, said Tom DeMark, the developer of market-timing indicators who predicted the gauge’s peak last year.
...poised to erase those gains and drop below this year’s intraday low of 1,974.38.
[9]
“Selling into strength now is recommended,” wrote DeMark, the founder of DeMark Analytics LLC in Scottsdale, Arizona, who has spent more than 40 years developing indicators to identify market turning points. “The trend is your friend until the trend is about to end.”
DeMark has had a good year in China...
DeMark’s prediction in February 2013 that the Shanghai Composite would retreat came a day before the index began an almost 20 percent tumble from a nine-month high of 2,434.48.
His prediction on June 21, 2013 that the stock gauge was poised for a recovery presaged a 16 percent advance from its closing low on June 27 through mid-September.
“It is always best to announce a top/bottom before it might occur so one is able to sell strength or buy weakness,” DeMark wrote.
* * *
Perhaps the market senses the hangover from China's huge credit impulse is coming...
[10]
