Out Fox The $treet

The Chinese stock market has absolutely collapsed during June and especially the previous couple of days. The composite has dropped from 2,300 to 1,963 in less than a month. Not very often does a major index trade with an RSI of 15. This drop has hurt most commodity and emerging growth stocks during this month. Some interesting buying points might have been reached for coal and copper stocks. Those stocks are at least worth a look. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Amazingly the China stock market as represented by the Shanghai Composite keeps to new multi-year lows. As seen from the below 3 year chart, the index as virtually fallen every month since the peak back in October 2011 at nearly 3,200. The index is now barely holding onto 2,000 after a very weak summer. Ultimately this should lead to more stimulus eventually. Investors should keep an eye on a bottom for the coal producers or other mining stocks that have been crushed this year. China has clearly slowed down, but the question still remains whether growth will be 6% or 8% which is a far cry from a recession. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Over the last few months, the markets have been struggling with whether China was headed for a hard landing. The Shanghai Index ($SSEC) recently headed back to 3 year lows on these fears. What though if China was already re-accelerating? Recent reports on bank lending and inflation suggest that the economy has already hit bottom. David Carbon, Managing Director of Economics and Currencies at DBS Bank, thinks China hit bottom prior to the start of 2012. Now with the inflation data picking up (March came in at 3.6% vs 3.3% for February) it signals the economy already turning around. Song Wun of CIMB Research thinks China could expand as much as 9% this year with a target of 8.7%. Remember that the government set an official target of 7.5% though any smart investor should've known this was the lowest possible. Instead, the market sank thinking a hard landing was on the way. Is it possible that just as the European crisis was much to ado about nothing so could the fears of a har...

As the markets open on Monday in Asia, China has jumped another 17 points after a blistering start to 2012. The Shanghai Composite as already jumped roughly 15% from the lows in early January. Expect to start hearing correction calls this week. Sure that market needs a breather, but it isn't even back to the mid November levels. Difficult to see that as an over extended when looking over the last 6-8 months. Our models remain invested in China stocks ChinaCache (CCIH) and Lihua Holdings (LIWA) plus numerous other stocks that benefit from a soft landing in the economy and rebounding stock market. In addition, the market action makes us more interested in finding some China stocks trading is the US that haven't moved yet. Disclosure: Long CCIH and LIWA. Please review the disclaimer page for more details.

For months now, the weakness in the Chinese stock market has hampered any recovery in US. The fears of a hard landing in China added on top of a EU blowup has just been too much for the markets. After a week long holiday, Mondays' lame action in the Shanghai Composite was seen as very disappointing. Investors were hoping that the major reversal in the US markets last Tuesday would lead to a major rally, but instead nothing happened. Then, Tuesday was very volatile. Finally on Wednesday, the Shanghai started up down and then had a strong rally. The bullish engulfing pattern is typically a very bullish reversal. Tonight will be telling as even positive market action would be the first positive confirmation since July when the market traded above the 10ema. The CPI numbers come out Thursday night and that will definitely move the markets. Inflation has been the biggest fear with China. The August numbers cooled down and September should follow as commodity prices imploded during t...

The China stock markets have been on a major 6 day winning streak taking the Shanghai Index from 2,600 to nearly 2,900. Though the below chart doesn't capture the roughly 0.6% move overnight, this index has been on a major rally. Its likely to end soon as the RSI and CCI numbers already show overheating without the lastest results included. For the short term, the market could easily see a small correction but longer term this index is likely going back up to at least 3,100 which is where it was at back in April. The China domestic plays like LIWA and PUDA remain the best plays as they still haven't rallied much especially compared to their very strong fundamentals. US stocks that benefit from a stronger China have mostly rallied very strong such as FCX hitting 100 today. Met coal plays such as ANR and MEE haven't run as much so they might provide the best upside from a domestic play. Or possibly a company like TEX might provide the best upside as crane sales have remaine...

After a 3% rise on Friday, China markets are soaring some 2.5% today. The Shanghai Index had been trading between 2600 and 2700 since late July and as of Friday it had finally broken above the range signaling a likely significant rise ahead. This is great news for bullish US investors as a breakdown the Chinese stock market and 2nd largest world economy could have doomed the US rally. As of midnight in New York, Shanghai is trading above 2800. On Tuesday the index is likely to consolidate back around the 200ema of 2744, but any pullbacks should be bought. The chart below doesn't show today's action, but the 2+ month channel that has been broken to the upside. Chinese investors clearly came back from the holiday in a buying mood.

Since China plays such a big position in the global trade, we've begun watching their markets alot closer. It also gives us something to watch with the US markets closed and China having 2 trading sessions since the US closed last Friday. Especially since Japan has for a long time lagged any US moves. China is the one market that seems to move prior to the US. Unfortunately its been all down for a long time now. On Monday, Shanghai closed down .8% after another early plunge followed by an afternoon rally. This made a 2nd attempt to break down towards the 2300 level. As of today, the market is up some 1.7% at least signaling a short term bottom. It'll be worth watching to see whether a bottom was put into place. Expect the US markets to at least follow tomorrow. Any selloff in the AM should be bought. The US markets are very oversold so they are at least due for a bounce. Most think it should be sold but we'll see how it plays out first.