Todd Harrison: Is China About to Drop Another 10%?

By Todd Harrison  MAR 11, 2014 9:25 AM

Looking around the world and back.

 


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Turnaround Tuesday is upon us -- are you with me?

You know what happened last week. Following an orderly stretch of sessions that saw traders setting up for the stock market breakout, a geopolitical fumble-ruski arrived to shake out some bulls and suck in some Russian bears.

Following a weekend full of hand-wringing and red arrows on Monday, Putin blinked -- or, he bought himself some time by pretending to blink -- and the stock market took off to the upside and never looked back.

We touched on the critical technical levels yesterday -- and examined the fundamental backdrop, structural landscape, and the psychology surrounding it all -- as we readied for this five-session set. We know that when those four legs are under any given thesis, the odds of success increase in kind.

As outside influences continue to vie for our collective attention -- missing airliners, Venezuelan coups, Chinese chatter -- the judge and jury of our global standing remain the financial markets, which begin this day a stone's throw from the flat line all around the world. Odds are they're not going to stay that way for long.

Reversal of Fortune, Cookie?

For me to offer that China has been acting funky isn't exactly breaking news. The Shanghai Composite (SHA:000001) is down some 67% since the 2007 peak and the price action has been uninspiring ever since, to say the least.

With all the chatter making the rounds -- and as a firm believer of smoke being a precursor to fire -- I will draw your attention to SHCOMP 1985 (vs. last night's close of SHCOMP 2001).

If that level breaks, it "works" (through a pure technical lens) to SHCOMP 1792, or a move of roughly 10% lower. Given the sharpest moves lower tend to occur after large downdrafts (think US in 2008), this wouldn't be a shocker. The question, of course, will be "why," and "what" that means for the rest of the world, which has thus far been insulated from the Beast of the Far East.



Random Thoughts:

R.P.

Twitter: @todd_harrison

No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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