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

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Looking around the world and back.

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Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter where subscribers can follow over 30 professional traders as they share their ideas in real time. Want access to the Buzz plus unlimited market commentary? Click here to learn more about MVPRO.

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:

  • Rafael Diamond is one of the sharper in our community, which is why I pay close attention to his vibes. His observation yesterday on the TRIN signaling capitulation is probably the last thing I expected to see (read) given our field position, but it was a welcome flash from the "other side."
  • When I heard that two of the passports on the Malaysian Airliner were stolen, my first thought was terrorism. Of course, that just may be a remnant bias from many moons ago.
  • The biotech sector outperformed yesterday and finished the session hugging the IBB (NASDAQ:IBB) 260. Of course it did; why make things easy?
  • Ditto the banks and transports, which have yet to clear their respective technical hurdles.
  • Another day, another round of 25% swings in cannabis stocks. This time, Bart Mackay, who owns 49% of CannaVEST (OTCMKTS:CANV) -- the stock mentioned with the wrong chart two weeks ago that cause the "chart" to go parabolic -- thinks his stock might be a little high, and comments are taking some air out of the space.
  • I don't disagree; this has been my "single best idea for the next decade" since 2012, but some of these names are bubblicious. It's starting to feel like the cannabis bubble must pop for the real winners to emerge; sorta like dot-com in Y2K. Patience will pay off (big, I think) but there will be pain before that pleasure.
  • While my team hit the skids of late, I'm ready for March Madness -- the single best sporting event of the year. If Syracuse wins the ACC tourney, I still think it captures a two-seed in the East, but it needs to stay healthy to make a run. We will, of course, host the Minyan March Madness Brackets again this year.
  • Good luck, and as always, I hope this finds you well.
R.P.

Twitter: @todd_harrison

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No positions in stocks mentioned.
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