Are The Markets About To Get Shanghai'd Again?

Authored by Mark St.Cyr,

As we sit here on Wednesday the “markets” appear to be recovering from yesterday’s rout in both the U.S., as well as Europe. e.g., Italy and its contagion fears. Many across the mainstream business/financial media landscape are now waving their “all clear” pom-poms.

Whether this is true, in regards to Europe, is an open question at best. Yet, for the record, I think it’s anything but solved. Only contained, for the moment. But that’s for another article.

What I believe one should be focused on is not Europe – But China, and Shanghai in-particular. Here’s why:

Currently no matter how bad the circumstances may be in Italy at the moment, the ECB led by Mario Draghi are still in “Whatever it takes” mode.

Although the situation could go from bad-to-worse, at any moment. Until you get some immediate, catastrophic announcement such as a major bank failure (think Deutsche Bank™ as an example) sovereign styled risks (i.e., bonds et cetera) are immediately accessible for the ECB to “step in” as they say and shore-up a market. Of course, there’s always the caveat: “It works like a charm every-time it’s tried – until it doesn’t.”

When that “doesn’t” time is, is anyone's guess at the moment.

However, with the above said there is another market one should be paying close attention to. That market is the Shanghai Composite Index™. (SCI)

The SCI is one of those bellwether type indexes to watch when trying to gauge anything China market related. And what it is showing seems of little interest to most mainstream financial/business media pundits. Either that, or they have no real clue. I’ll go with the latter, but that’s just me.

So here’s something I feel one should pay the utmost attention to over the following days and weeks. The reasoning is quite simple: What happens in China will effect everything in the U.S. and world with near immediacy. Need I remind you of that morning in August, 2015 where the U.S. woke to its major markets in “Limit down” status?

Remember where it all started? Hint: China and in-particular the SCI. To wit:

(Source)

The above is a chart of the SCI and the candles/bars represent daily intervals.

As of this morning (or last night) the SCI has been sending signals that something is not quite right. The behavior via a technical eye seems to show it’s at the cusp of going into free-fall status. The 3000 level in this index is a very large psychological level much like our own Dow 20K, for an example.

If this level is lost and suddenly begins to fall precipitously, as well as with speed? 2015 type “market” fears, once again, may jolt “markets” globally.

The caution in such an issue, or “jolt” happening today, is for this reason: “It’s different this time” i.e., The Fed is currently in QT mode (quantitative tightening) mode and raising rates. So there’s even less in the “markets” as far as liquidity to help cushion any initial sell-off as what happened in 2015 – and – the Fed. coming to the rescue this time, may or may not, solve the underlying rout, only slow it down, for the moment.

Again, for anyone trying to pay attention as to what may be on the ever-changing horizon, I can only say this…

Italy may send the markets roiling, but Shanghai could close them. If you think that’s hyperbole? Then you, much like most of the business/financial media, have forgotten 2015.

Comments

hola dos cola Thu, 05/31/2018 - 15:23 Permalink

Oil has become a weapon. It'll take down the market.

The casino just ain't the casino anymore.

It's not the Chinese, in my opinion. You watch them, you'll be late.

CashMcCall Thu, 05/31/2018 - 15:55 Permalink

So there you have it the prognosis coming from TrumpLand... 

When markets crash, it won't be China dropping into the abyss it will be the Orange Ceasar dragging the US Economy into the Abyss. Let's recall that Trump said the US GDP would be 6% in the first quarter. Larry Cudlow reinforced the same thought. The GDP was just revised down to 2.1%. The Bullshit raft only supports so much dead weight and that load has been exceeded. 

Trump is a moron with a crummy four-year liberal arts degree and nothing more. Born with a 400 million dollar credit limit, adjusted for inflation, Trump is even with his inheritance and no better. Trump is a fraud. The US is headed to a massive Trump Debt blowout recession.

Herdee Thu, 05/31/2018 - 18:51 Permalink

You can be rest assured that the ESF or the Exchange Stabilization Fund that is currently and openly rigging and manipulating all U.S. markets isn't going to step in with unknown trillions to rescue China. The CIA's drug money from cocaine and heroin operations isn't going to be allowed to save the competition.

Let it Go Thu, 05/31/2018 - 19:49 Permalink

For China it is not always about profit but what serves the "greater good" of china. It could be said that people are naive if they do not recognize the distinct advantage a state-driven economy has over free enterprise, at least initially.

China's system is a bit predatory in nature and geared to quickly exploit the weaknesses of its competitors. the article below looks at some of the ways by subsidizing those companies working within its system in a multitude of ways China goes about achieving its goals.

 http://China's State Driven Business Model.html