April 30, 2010 – How Can the Us Go Up and China Go Down?

Featured Trades: (FXI), (SPX), ($SSEC)

2) How Can the US Go Up and China Go Down? There is something that is not right with these pictures. Investor sentiment is now 54% bullish, the highest since December, 2007. In the meantime, the Chinese stock market is rolling over like the Bismark, with the Shanghai Index's ($SSEC) down a worrisome 10.8% YTD. You can blame the Chinese central bank's efforts to cool down real estate speculation, which is throwing cold water on the rest of the economy. Many of the profits that have driven US stocks to bullish extremes are contingent on selling a huge range of capital goods and commodities to China and the rest of the emerging markets, hence the disparity. This divergence can't last, and my bet is that it breaks by American indexes joining China in a downtrend. This is just a humble observer's opinion.

Shanghai-2.png picture by madhedge