China is melting down on prospects of rising interest rates to cool growth. It is currently down over 4%, this time, however, I believe the markets have learned not to over react to the "small" Chinese market. The Dow, Nasdaq, and S&P 500 futures are all currently positive and it seems that today's action priced in the possiblity of another Chinese market meltdown. It is to be remembered that last time the Chinese market melted down, it promptly recovered. Given the non transparent nature of that market, manipulation has to be considered. This time, the market players will not fall for it.
However, the Chinese market overheating is just another symptom that this market is fundamentally flawed and all is not well. However, trend is clearly up, and barring a few sectors, it would be difficult to continue to fight the tape. I do believe that the major correction is probably closer than further, but at the moment, the path of least resistance is "up".
Keep in mind however, that there is also a significant divergent action within the market. Dow and Nasdaq and diverging from one another. While the Dow continues to set new records, Nasdaq continues to meander. This is reminiscent of the July rally that began with Dow taking the lead and NASDAQ falling behind, only to catch momentum midway thorugh the rally. Having said that, this market continues to remain over extended and in "high risk" territory and long positions should have a short stop loss built into them and everyone should have a strict loss cutting rules.
At the moment, I am net short on Countrywide (more on that on my next blog)and long on Google, LHCG. I am bullish on CSCO and remain bearish on BIDU.
Subscribe to:
Post Comments (Atom)
Comments
No comments:
Post a Comment