While our counterparties have been busy defending their negative sentiments, markets have crept higher. Now our fellow bears would say that, "So what if we have crept higher, there is supply overhang that is still there. A multi-week break of resistance does not mean that the multi-month resistance has vanished. Look at the Dow, even if the multi-month stands broken, the all-time 2008 high is still standing firm".
See this is all fine, and bulls make money because bears reason, question, doubt, etc. and vice versa. But what the losing party forgets is that it's extremely hard to pinpoint the last leg. A panic low does not come and say, "I am done, please BUY".
Markets are in a complex correction in India and even in the US. Indian complex correction is of a multi-year degree, while that of the US is of a multi-decade degree. And when things get complex, understanding price structure, and trade set-ups becomes harder. Simply putting, pattern watching becomes more illusory. In such times, it's better to step back rather than indulge.
Today we are going to make a Chinese case for the start of a secular bull from current levels. As you already know by now the idea of performance cyclicality, what is a worse performer outperforms in future and vice versa. Now the Shanghai index has been a secular underperformer. We feel this secular underperformance has reached an absolute low and the SSEC Shanghai should see a reversal soon.
SSEC Shanghai index is at key support because of many reasons. First, the current levels at 2,000 are at key psychological prices. Second, these supports are tested thrice since 2000. This makes it a multi-year accumulation level and harder to breach. Third, the current support also marks the retest of the 2009 lows.
Now a bottom test one can only assume negative sentiment rather than a positive view. And in the absence of a price break confirmation, we rather be counter intuitive and positive rather than negative, extrapolating and intuitive.
We compared the global indices and assets with the Shanghai Index.
The Chinese index vs. Dow 30 has reached multi-year underperformance lows. This means that SSEC should outperform the Dow 30 from the current levels. Now outperformance of SSEC Shanghai Index vs. Dow 30 would mean many things. It would mean that SSEC could fall less than America, in case both markets fall. It could mean stagnation for SSEC China while American markets fall and the other case is that SSEC rises more than Dow 30 as both markets rise. Now the interesting aspect is to separate the probable from the possible. For us at Orpheus, Dow retest of all-time highs with SSEC China ready to reverse is nothing short of a propitious assistance for global equities to get into a secular bull market.
SSEC vs India might seem like a surprise. But, the Sensex is actually underperforming SSEC and the trend is ongoing. An absolute move up on Shanghai index only strengthens our India bottoming case. We need a large drop on SSEC to expect Indian negativity to continue. So, any SSEC reversal mitigates bearish sentiment on India.
Sectorally, BSEOIL, BSEPOWER and BSEREALTY are the potential outperformers vs. SSEC China. The other sector indices like CNXIT, BSEAUTO, and NSEBANK are stagnating and potentially underperforming SSEC China.
The author is CMT, and Co-Founder, Orpheus CAPITALS, a global alternative research firm
