Chinese Stock Market Down 7%: A Secondary Correction May Be Unfolding In The U.S.

Several things are on my mind this morning, particularly the question of why the main “garbage” stocks, like Citigroup (C), Freddie Mac (FRE), Fannie Mae (FNM) and AIG (AIG), are being bid higher across the board. This situation flared up a week ago Monday at precisely 9:45am ET, and from the opening bell on Tuesday, Thursday and Friday.

http://finance.yahoo.com/q/bc?s=JPM&t=5d&l=on&z=m&q=l&c=c,aig,fre,fnm

One look at the comparative charts of the JPMorgan (JPM) vs C AIG FRE and FNM (see finance.yahoo.com), and any person can see this was a premeditated group action by some party or parties acting in concert. Ask yourself why JP Morgan stock is not doing so well in light of what’s happening to the sisters.

This is not a so-called free market at work.

An effective SEC would look into this matter and tell the public their factual findings. Until them, I am going to presume that the public is being set up with a Bull trap, and the garbage that nobody can analyze is being propped up as a sign that the financial system is back on track when, seriously, we know it is not.

Aware that a secondary correction may be unfolding, one of my associates, Pascal Willain, sent this email this morning:

Bill, Good morning!

Last Friday was a distribution day in terms of EV. The 20DMF signal turned slightly “flatter” or more directionless. What I find strange is that Friday was a POMO day, but the overall picture was not too positive. Both the S&P500 and the NQ are now building negative divergences that are typical of a coming correction.

I also find rather strange that there is such speculative moves into C, FRE, FNM, AIG as if these “ugly” stock would soon become the new stars. Probably late investors that want to bid junk stocks up. Typical of a topping process.

However, today is “end of the Month window dressing”.

The wild card will be how much money can the FED still pump into this market and will this have an effect from now on without first having a correction.

I will probably orderly close long positions that I am holding and depending on market conditions might start shorts.

Have a good day.

/Pascal

As you may know, Pascal works in Belgium and is one of the CTA team. By the time you read this he has seen the open in Europe and UK and has already taken action. As you know, a week ago, my other market research associate, Pierre Brodeur from Montreal, gave us his views on what he saw was an impending market correction. I have been seeing the same evidence in the simple little Cara RSI-7 system.

Today, I want people to see that professional traders are also dubious about what certain people want us to think about the good health of the market today, particularly in the share prices of C, AIG, FRE and FNM. It’s almost criminal what I think is going on.

Colin Twiggs, working from Australia, has opined in his Incredible Charts market letter that the recovery in global shipping rates that started at the beginning of the year ran into headwinds at the beginning of June and has been downhill from there. If consumers and manufacturers stop buying, the shipping business slows right down and rates drop, which is the case at present. Commodity prices are being affected.

The Baltic Dry Index reflects bulk international commodity shipping rates and provides advance warning of changes to commodities prices and the Shanghai Composite Index. Decline in the BDI since early June was a precursor to the fall in both the Shanghai and CRB Commodities Indexes. Respect of support at 2300 [orange] would signal that the correction has ended, while failure of primary support at 1500 would warn of reversal to a down-trend…. The CRB Commodities Index is undergoing a secondary correction as a result of falling demand from China. Failure of short-term support at 253 would confirm the signal, while breakout above the declining trendline would suggest that the correction is over - the short duration indicating a strong primary up-trend.

Today, again, there has been a major shake-out of the Shanghai equity market. The index has plummeted -6.74%. One attribute of the Chinese investor - quick to get in, quicker to get out. Four weeks ago, I noted in this blog that when people hear that the monetary authorities of China intend to deleverage their financial system by causing the banks to drastically tighten lending practices, it’s like an alarm bell. For the Bulls, the chart since then is ugly.

http://tinyurl.com/nj2u5c

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