Jeff Clark's Market Minute

Bottom Fishing in Chinese Waters

China’s stock market dropped to its lowest level since 2014.

Trade war headlines have kept the Shanghai Stock Exchange Composite Index (SSEC) under selling pressure for most of 2018.

The index peaked at 3550 in January. It closed at 2652 yesterday. That’s a 25% loss in just eight months.

OUCH!

Most of the financial television talking heads are advising traders to steer clear of China right here. “The trend is down,” they say. “There’s no need to try and catch a falling knife.”

But, based on the action in the Chinese exchange traded funds yesterday, I’ll argue that now is an ideal time for aggressive traders to go bottom fishing in Chinese waters – at least for a quick trade.

Recommended Link

Banned for 155 Years, Ben Franklin’s “Money License” Legal Again?

Benjamin Franklin was a very rich man—But do you know how?

The Founding Father owed the biggest part of his fortune … not to the invention of bifocals, the lightning rod, or Poor Richard’s Almanack… but to a special type of “money license” he used to help U.S. colonies prosper.

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Now it’s making a comeback, and 13 U.S. states could re-instate the “money license” very soon. For those who take advantage, it could mean the payday of a lifetime. (Franklin made so much money he was able to set up a trust that paid out millions… for 200 years!)

The SSEC dropped more than 1% during Monday’s trading session. But by the time the United States stock market opened for trading, most of the Chinese ETFs were down just a small fraction. For example, at its low of the day yesterday, the iShares China Large-Cap ETF (FXI) was down just 0.60%.

More important, though, is that by midday, FXI – and most other Chinese ETFs – had reversed its losses and closed higher on the session. In other words, despite the Chinese stock market closing at its lowest level since 2014, the Chinese ETFs that trade in the United States closed higher on the day.

That’s bullish action. And it likely marks at least a short-term bottom for the Chinese stock market.

Here’s the chart of the SSEC…

The chart is displaying a bullish falling wedge pattern with positive divergence on several technical indicators – like the MACD, RSI, and the Commodity Channel Index (CCI), another measure of overbought or oversold conditions.

In other words, as the SSEC has been making lower lows, the technical indicators have been making higher lows. This often occurs before an intermediate-term trend change.

So, while the “talking heads” advise against buying Chinese stocks right now, I think we actually have a good setup for a solid upside move in the Chinese stock market.

If the SSEC can breakout to the upside of the falling wedge pattern then it ought to move immediately up towards its 50-day moving average at about 2767. That could be a very fast 4% gain.

Best regards and good trading,

Jeff Clark

P.S. As many readers know, I tend to avoid the spotlight. Despite the opportunity to appear many times on financial television networks, and invitations to speak on some of the most popular financial podcasts, I’ve refrained from expressing my opinions on the stock market to folks outside of subscribers to the Market Minute and my Delta Report trading service.

I don’t do much public speaking unless I have something really important to say. Now, with the stock market rapidly approaching what I think will be a MAJOR turning point, I’ve agreed to give my first public speech in over two years at the Legacy Investment Summit in Bermuda next month. I’ve also agreed to participate in a “Bull vs. Bear” debate (you can guess which side I’m on), and present a 45-minute “class” explaining my version of technical analysis.

The conference also includes presentations from investment-world rock stars such as Doug Casey, Bill Bonner, Rick Rule, Teeka Tiwari, Dan Denning, and more. I am humbled just to be part of the lineup.

There are only a few tickets still available to the conference. If you’d like to attend, then you can buy tickets through this link

If you get a notice that the conference is sold out, then call this number: 888-413-5232.

Tell whomever answers that you’re a subscriber to the Market Minute or the Delta Report. As a favor to me they’ll help get you into the conference.

But I can’t guarantee tickets will be available for long.

Like I said, I don’t speak in public unless I have something important to say. And I don’t have a history of recommending most investment conferences. But I really like the line-up of this Legacy event.

So, if you have the chance to take a few days off in October to hang out in Bermuda with some of the smartest minds in finance, and you also might want to hear what I have to say, then click here for more details

Reader Mailbag

Today in the mailbag, a Delta Report subscriber writes in with what motivates them to trade…

I have been a longtime customer of Jeff Clark and think he is the best market chart technician that I have ever seen!

Due to the fact that I am now in my fourth year of helping fund four of my grandchildren’s education, I do weekly options based on Jeff’s market analysis, and have been most successful. I will have four more starting their college education next year and plan on helping them in the same way.

Thanks, Jeff, for your wonderful help in allowing me to assist my fine grandchildren and their families in this manner!  Just keep on keeping on.

– Hardy

And another responds to yesterday’s essay on the buck

You are trying to determine the future of our dying dollar with real technical analysis and real fundamentals. The dollar is being affected by all the other countries being in more trouble with their deficits and the stupid mouth of our “combover” with his stupid tariffs. It does not trade on real fundamentals at all.

We have to deal with all the manipulation and unintended consequences. We both know it is unbacked, being printed into worthlessness, and is being replaced as the choice of international trade. It will just take time for the obvious to happen when real fundamentals cannot be ignored or manipulated anymore.

When China fires back with the support of other countries, it will be game over. Facts are facts. Gifted BS remains gifted BS. What is that saying? One can be right longer than one can be solvent.  Don’t take big bets yet.

– Bernie

Is it still possible to trade the dollar on technicals alone? Or is there too much “headline risk” for big bets?

As always, let us know – along with any trading stories, questions, or suggestions – right here

Jeff’s intuitive feel for short term market swings and his strong protective discipline have allowed me to lock in thousands of dollars in gains where I might otherwise have just ridden the markets up and down .”  -Chris, a reader and “seasoned investment advisor” from Seattle

Jeff -- your picks and analysis have been nothing short of amazing. I have traded the market for many years but I must admit, I have NEVER seen something this good.” - Mike H.

In only 2 weeks of using the service I’ve booked over $10K in profits. Needless to say I’ve paid for my membership.” - Tony J.

I started following Delta Direct about 3 weeks ago… I bought a small investment from one afternoon to the next morning. About 11AM I got out and made 8K in less than 24 hours.” – D. Tilghman