Douglas Davenport: If you ask people what they know about the Chinese economy and stock market, many of the responses you’ll hear are either outdated or just plain wrong.
The first thing you’re likely to hear is that China makes everything we consume. That’s a lot further from the truth than it used to be and, more importantly, it’s irrelevant to investors like us.
You’ll also hear that Chinese stocks are a solid gauge for copper and, therefore, a good way to forecast building and development in general. That type of generalization may fly in an economics class, but it doesn’t do us much good in the real world.
|Some perceptions that investors have about China’s stocks and its economy are just plain wrong.|
Although what passes for accepted wisdom on China is relatively useless, I still look at a chart of the Shanghai Composite every week, and I pay particular attention to the support and resistance levels. Why? Because Chinese stocks do have an unmistakable link to the U.S. market.
One of the most enlightening metrics I look at each week is a chart I created comparing the Shanghai Composite ($SSEC) to the S&P 500 ($SPY). As you can see, this ratio has been in a falling channel since the U.S. market hit bottom in March 2009.
Even more troubling for investors betting on a Chinese recovery are the technical indicators incorporated into the chart. The thin red and blue lines represent the simple 50- and 100-day moving averages, and the top chart is the Relative Strength Index (RSI), a widely used measure of momentum. Both indicators support the view that the Shanghai Composite will continue to weaken against the S&P 500.(...)Click here to continue reading the original ETFDailyNews.com article: Will U.S. Stocks Outperform Chinese Equities?You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (www.etfdailynews.com)
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