I highlighted months back that the Shanghai Shenzen Index looked like a parabolic top. I was mostly greeted with "It's different this time," and that China was immune to the rest of the world's problems. Apparently not, as it's fallen 50%.

However, take a look at the chart below. China is possibly in a spot where it could bounce, but still within the context of a bear market in which all rallies should be sold.


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But how about oil, called "Earl" in my neck of the woods? It's still parabolic and I'm not yet trading it. Here's why (this is something Minyan Peter and I were chatting about yesterday): Markets can remain irrational longer than you can be solvent. So you don't just short during a parabolic move. Sell your longs? Absolutely, because when they turn, it's usually a vicious move, particularly with a commodity.

The key is to wait for a sharp reaction down, an unsuccessful retest and then short it with a stop above the old high. The chart below is an updated version of crude from yesterday versus the Naz.


Click to enlarge