China’s breakout from a symmetrical triangle formation has been yet another example of how the direction of the breakout from such a pattern usually determines the next direction.
China’s Shanghai Index broke out of the pattern to the upside in late July, and has gained 10.2% in the two months since, breaking through the first two areas of potential resistance so far.
At our July 23 buy signal we noted the interesting comparison between China’s economy and market and those of the U.S.
The U.S. market has been in a long bull market in which the S&P 500 has gained 165% since 2009. China’s stock market had been in a long bear market in which it had declined 65% since its peak in 2007, and 39% from its peak in 2009.
Sentiment for the U.S. economy and market is at high levels of bullishness and complacency, while sentiment for China’s economy and market has been very bearish and pessimistic, looking for a hard landing for its economy.
As a result, the Shanghai Composite was selling at just 7.9 times 12-month projected earnings, down from its 5-year average P/E ratio of 11.3. Meanwhile, in the U.S. the S&P 500 has been in a powerful bull market since 2009, which has it selling at 18 times projected earnings.
China’s economy is projected to slow to ‘only’ 7.4% in 2014, and has a stock market plunged to a five-year low and selling at only 7.9 times earnings, while the U.S. economy, projected to run at 2.0% growth, has its stock market at a five-year high, and selling at 18 times projected earnings. Interesting.
Speaking of symmetrical triangles, there is gold.
Which way will gold break out of its similar pattern?
It has been confined in a symmetrical triangle since mid-2013. It broke out fractionally to the downside in a big decline on Tuesday, but rallied back some yesterday to fractionally back inside the triangle.
More good economic news this morning.
This morning’s reports are the ADP Jobs Report showing 204,000 new jobs were created in the private sector in August, missing the consensus forecast of 215,000, but another month of 200,000 + gains. The U.S. Trade Deficit narrowed to $40.5 billion in July, better than the forecast of $42 billion, and the June deficit was revised lower.
Then there was the news from Europe that the ECB will cut interest rates further in October, and embark on a U.S. style QE-type stimulus program of bond and asset-backed securities purchases, in an effort to get the euro-zone’s stumbling economy back on track.
To read my weekend newspaper column click here: The Eurozone is a Growing Problem for the U.S. Economy
Subscribers to Street Smart Report:
In addition to the charts and signals in the ‘premium content’ area of this blog, there is an in-depth Markets Update (Stock market, gold, bonds) from yesterday in your secure area of the Street Smart Report website.
Images: Flickr (licence attribution)
Sy Harding publishes the financial website Street Smart Report Online and a free daily Internet blog at Sy’s Free Blog. In 1999 he authored Riding The Bear – How To Prosper In the Coming Bear Market. His latest book is Beat the Market the Easy Way! – Proven Seasonal Strategies Double Market’s Performance!
It includes our research and analysis on the economy and markets, and provides charts and buy and sell signals on the major market indexes, sectors, bonds, gold, individual stocks and etf’s, including short-sales and ‘inverse’ etf’s.
It provides two model portfolios as guides. One is based on ourSeasonal Timing Strategy, one on our Market-Timing Strategy.
In depth updates are provided every Wednesday, with interim ‘hotline’ updates every time we make a trade. An 8-page traditional newsletter Street Smart Report is provided on the website every 3 weeks, in pdf format for viewing or printing out.
There is the Street Smart School of online technical analysis ‘seminars’,commentaries to keep you ‘street smart’ about Wall Street, and much more.