The China Factor No Trader Can Ignore

11/01/2011 10:16 am EST

Focus: STRATEGIES

Jeff Greenblatt

Director, Lucas Wave International, LLC

With China's major index trading below a critical level, Jeff Greenblatt warns that bullishness in other markets must be "muted" because of the lingering risk in China.

Today Jeff Greenblatt gives us his thoughts on the Chinese indexes. Jeff, you’ve been tracking the China markets, tell us your thoughts.

China topped in April, and while it was going down, our markets were going sideways. They topped in May, they topped again in July. As long as the Chinese market—and we’re talking about the Shanghai exchange, the SSE—as long as it stayed above the 2640 level, our bearishness was muted. 

What that means is that we were not going to go all in, but if it broke that level, it gave us an indication that something more serious was going on.

Since our markets topped in July, China broke 2640, and you could see the results of the type of selling we’ve seen in this country. 

Now the problem is as we speak, the Chinese exchange is 200 points lower, and I should tell everyone that the reason 2640 is so important is that it is a specific range in time square relationship for Gann aficionados, and that 2640, if you go back over the past couple of years, has attracted the price action on both the support and resistance side, so it’s basically confirming our hypothesis to begin with. 

See related: Trading on Gann Theory

The bottom line is that as long as the Chinese index stays below 2640, we have to be very muted on our bullishness on any rallies that American stock markets might have.

That was something I was going to ask you about. How should traders interested in the US markets view this information?

As long as the Chinese market stays below 2640, any rallies that we’re going to have should be viewed as trading rallies as opposed to a new leg in a bull market that’s going to go to new highs.

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