Slope of Hope Blog Posts
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There are very few guarantees I can offer on this blog, but here is one of those rarities: November 2nd and 3rd are going to be insane. The twenty-four hour period between 5 p.m. EST Tuesday and 5 p.m. EST Wednesday are going to be simply bananas.
Why? Simple: on Tuesday there are the mid-term elections, and the balance of power in government is going to be the focus of intense speculation and attention. Then – at long, long last – the jeanyuses at the Fed will unveil QE2 in its resplendent glory. At least I hope they do. Because if they don't, it's going to be prolonged torture for everyone.
Yesterday morning was, in my opinion, a miniature version of what November 3rd is going to be like. Yesterday we got a small "sell the news" event. The real McCoy from the FOMC will hopefully get this QE2 crap out of the way once and for all, and will help clear the air for some real market action.
Let's have a look at our comparison chart between the Shanghai Composite and S&P 500, as we examine whether the SPX will continue to follow China higher.
Since October 8, when the Shanghai Composite returned after a one week holiday, the China index is up 11% and +26% from its major low in July. Through the August timeframe, we often discussed the hypothesis that the China bear phase from August 2009 ended in July 2010, and that China is leading the resurgence of global equity markets. Since its July low, the SPX is up "only" 17%, but if it is following the Shanghai (and the Shanghai is heading for 2990, a gain of another 4.5%), then perhaps the SPX is heading for 1235-1240 before the bulls reach exhaustion?
If that is the case, then the basic materials and mining stocks should derive some meaningful benefit. For the moment, one of our few long equity positions is Arch Coal (ACI), as my technical work still indicates that the natural resource producers will benefit from their "China connection."
Originally published on MPTrader.com.