China Soft Ahead of Fed, Big Tech Earnings. Transports Lower

July 27, 2021

Markets are lower in afternoon trading in New York today. China fears have created uncertainty, and why we looked to short the Transports yesterday.

It seems like rough markets have a way of originating in China.

Thinking back to 2007, I remember watching the China markets meltdown. This process began well ahead of the US financial crisis of 2008.

Looking back at markets that you have lived and traded through, you amass a mental library of history and look to learn from it. Before 2007, I spent years as a Real Estate Agent and remember the days of people being approved for home purchases on variable ARMs and very low-income requirements. You just knew the music would have to stop at some point as banks loaded up subprime borrowers with debt that logic would dictate as unpayable.

The China markets started to crack ahead of the US markets back then.

Figure 1 - Shanghai Stock Exchange Composite Index March 24, 2007 - May 2, 2008, Daily Candles Source stockcharts.com

I do remember watching this market at the time. Other China indices fared even worse. Around this time, the $SPX experienced a pullback too, but one of a much lesser magnitude.

Figure 2 - S&P 500 Index August 1, 2007 - December 7, 2007 Daily Candles Source stockcharts.com

As we can see, the $SPX also pulled back around this time, but in more of a pedestrian manner, with a 5.4% pullback over an 11 day period versus 10.8% for China around the same time period.

It is important to note that the $SPX had pulled back prior to this time and rebounded to all-time highs. I am mentioning all of this as markets have memories and accelerated moves in China catch my attention. Let’s also mention the obvious here: the Covid meltdown in Feb - March 2020.

As China is grabbing all of the headlines today, let’s see how the Shanghai Stock Exchange Composite has fared yesterday and today.

Figure 3 - Shanghai Stock Exchange Composite Index March 17, 2021 - July 27, 2021, Daily Candles Source stockcharts.com

Yes, the Shanghai Composite is lower over the last two days. However, the sky isn’t falling, at least not yet. It is lower by 2.9% or so over the past two sessions. Note the support that was found around its 200-day moving average.

What All of This Means for Us

I believe it is smart to avoid getting too caught up in the daily headlines, for the most part. Price and divergences can tell better stories than any news headlines, which often come out much too late.

This is the reason that it made sense to target the Transports to the downside yesterday. We had a pattern of lower highs and lower lows, with clear divergence from the direction of the broader markets since May 1st. In case you missed it, you can read about the analysis of the Transports in the July 23rd publication and in yesterday’s July 26th publication.

As we targeted the short side of the IYT yesterday afternoon around $258.00, let’s see how the transports are faring in today’s market down day.

Figure 4 - iShares Transportation Average ETF March 1, 2021 - July 27, 2021, Daily Candles Source stockcharts.com

The IYT is lower by 2.54% as of the time of this writing. As discussed, the Transports were already trading lower versus the broader indices.

Right now, we see the RSI(14) at 40 and daily MACD crossover brewing to the downside with the fast line crossing the slow line.

We will hear from the Fed tomorrow.

The FOMC statement and subsequent press conference is slated for tomorrow. Those kinds of days can be tough to trade, and depending on the Fed’s tone, anything could happen.

Now, for our premium subscribers, let's look cover some potential take profit levels and strategies in IYT, and recap the other markets that we are covering. Not a Premium subscriber yet? Go Premium and receive my Stock Trading Alerts that include the full analysis and key price levels.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter - it's absolutely free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Rafael Zorabedian
Stock Trading Strategist

Sunshine Profits: Effective Investment through Diligence & Care

* * * * *

This content is for informational and analytical purposes only. All essays, research, and information found above represent analyses and opinions of Rafael Zorabedian, and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. You should not construe any such information or other material as investment, financial, or other advice. Nothing contained in this article constitutes a recommendation, endorsement to buy or sell any security or futures contract. Any references to any particular securities or futures contracts are for example and informational purposes only. Seek a licensed professional for investment advice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Information is from sources believed to be reliable; but its accuracy, completeness, and interpretation are not guaranteed. Although the information provided above is based on careful research and sources that are believed to be accurate, Rafael Zorabedian, and his associates do not guarantee the accuracy or thoroughness of the data or information reported. Mr. Zorabedian is not a Registered Investment Advisor. By reading Rafael Zorabedian’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Trading, including technical trading, is speculative and high-risk. There is a substantial risk of loss involved in trading, and it is not suitable for everyone. Futures, foreign currency and options trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment when trading futures, foreign currencies, margined securities, shorting securities, and trading options. Risk capital is money that can be lost without jeopardizing one’s financial security or lifestyle. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Rafael Zorabedian, Sunshine Profits' employees, affiliates, as well as members of their families may have a short or long position in any securities, futures contracts, options or other financial instruments including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice. Past performance is not indicative of future results. There is a risk of loss in trading.

*******

Man has had the ability to separate silver from lead for as far back as 4000 B.C.

Silver Phoenix Twitter                 Silver Phoenix on Facebook