BarroMetrics Views: Trading and Myopia
It affects all of us: we form a view of the markets and seem to automatically block out information that contradicts that view; or we interpret the possible contradictory information in a way to conform to our view. For me, it calls for a conscious effort to ask and answer continually the questions:
- In what way could this information adversely affect my scenario?
- What has to happen for this view to prove itself?
- And if this alternative proves correct, what action do I need to take?
It seems to me that the markets have a myopia of their own when it comes to China.
We saw a rally spark in the S&P the other day because China was rumoured to be willing to buy European Bonds - in short, China is being seen as Europe’s saviour.
But if you look at Figure 1, we see that the Shanghai Index has just triggered a confirmed Death Zone Setup Short. This suggests we’ll see a breach of 1678.
Fundamentally, we see danger signs from:
- The property market (http://www.marketwatch.com/story/china-developers-short-of-cash-analyst-2011-09-14), to
- The deteriorating position of SME’s (the liveblood of any economy) (http://www.wantchinatimes.com/news-subclass-cnt.aspx?cid=1203&MainCatID=12&id=20110619000019), to
- China’s failure to deal with its inflation (http://chovanec.wordpress.com/2011/08/30/signs-of-continuing-china-inflation/).
So, if China is not in a position to bailout Europe, will the EEC survive? And if Europe goes, will the belief survive - that the FED can place a floor under the S&P? And if not, what does that mean for the US?
FIGURE 1 Shanghai Index
Refer this blog post to a friend or colleague…
