Like a Bull in a China Market
If a few million Chinese speculators start to smell smoke, it'll be a fire alarm for the record books.
I feel a wreck without my, little China Girl
I hear her heart beating, loud as thunder
Saw the stars crashing.
-China Girl (David Bowie)
She's my daughter... My sister, my daughter.
-Chinatown (the movie)
I was intrigued by Professor Bennet's post on the Buzz & Banter Monday regarding the position of the Chinese stock market.
To be sure, there are times when the investing world becomes so dangerous that the most likely rate of return for the average investor will be negative.
But, as the saying goes, timing is everything. The Time Factor is the most elusive element of speculation: one man's parabola is another man's momentum bonanza.
Who says markets aren't correlated? Who says cycles can't possibly influence asset prices since world markets dance to different drummers? The fact is that the runaway growth engine of the Chinese market, the FXI, found low on August 16, the same day the little train that could, the U.S. market, found low. As actor Billy Zane remarked in the movie Only You, "Que Coincidence!"
Is it just coincidence or is there something at work here? Is the point that this is the first truly Global Bubble (or Day-Glo Bubble, as those of us who the 60's were good to, call it)? This is the first truly global tiptoe through the tulips by Hoofy and we are all in fact inextricably linked in ways in which we can not understand as yet.
Looking at the way many go-to glamors such as Crocs (CROX), Garmin (GRMN), Las Vegas Sands (LVS), Baidu.com (BIDU) and of course the FXI powered higher on Monday, you have to wonder if it's that the bulls just aren't concerned about jumping off from the ledge of a stance of a risk adverse posture because, as Paul Newman remarked before jumping off the precipice in Butch Cassidy and the Sundance Kid, "Hell, the fall will probably kill us."
So, why can't I escape the feeling that the louder the heart of the Chinese market beats, the closer its stock stars are to crashing? Maybe because that's always the way parabolic advances end. Maybe because manias, although self-perpetuating, don't let out all the perpetrators whole.
At least that's the tape as history tells it and last time we looked, history was a long time. Tantrums have their hour of reckoning: even my four year old daughter would try to convince you otherwise. The most petulant of persistent runaway markets have their time-out.
Again, it figuring out that darn time thang that perplexes us the most.
So, speaking of bulls in a China shop, let's take a look at the FXI, because methinks if a few million Chinese speculators start to smell smoke, it'll be a fire alarm for the record books.
What could short circuit the Szechuan synapses? Your guess is as good as mine. Sometimes things just roll over of their own weight. But, one thing is for sure: this is Chinatown: the cross market inter-relationships and correlations may prove to be surprising.
A look at the monthly chart of the FXI shows that following a monthly plus one, minus two buy set-up in March fro a low of 90, the FXI is in its sixth month of higher highs. Many times significant turns occur when a market has driven up or down strongly into its seventh month.
Click here to enlarge.
In fact, at 180 the FXI will be up 100% in six months. The FXI tagged 175 on Monday. From the low at 90, 720 degrees or two complete squares up is 181. Moreover, the price of 90 an 181 "square out" or are an harmonic of the date of August 16 where the last key low was scored at 111.
Click here to enlarge.
111 is opposite 183 on the Square of 9 Chart. Finally, 183 is 540 degrees up from 111. This is important because 540 degrees is six squares of 90 degrees or a complete square--- a cube of six sides.
Counting from the August 16 low, the 49 to 55 day blow off zone comes out between October 4 and October 9. This becomes even more interesting when you consider that there is a potential big picture mirror image foldback being traced out in the U.S. market. Why? Five years ago in July 2002 the S&P made a spike low on July 22 before spiking sharply higher up into August 22. This year, July 19 was a spike high while August 16 was a spike low.
Click here to enlarge.
On October 9, 2002, the S&P made a marginal new low testing the July low.
Allowing for the six day offset from August 22 to August 16 and backing out six days projects to a potential turning point of interest around October 3.
Click here to enlarge.
As you know, the S&P made a significant test failure high on the 20-year cycle on October 4, 1987 prior to the deluge.
So, we approach an interesting window of time at the end of this third quarter where there is an interesting set-up, when many stocks seemed to have had a severe case of post-expiration Tourette's syndrome on Monday. Was it a case of expiration excision or a little window dressing?
This is a set-up, not a forecast, but something worth watching.
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