And although there have been solid reports posted by key companies the market is clearly having difficulty moving higher. After a tremendous run off the March bottom investors might be selling the recovery news as the recovery finally becomes obvious to all observers.
So a more significant correction than we have seen to date wouldn’t surprise us.
But action in the Shanghai Composite suggests any correction could be merely a consolidation of gains prior to a further run.
In our recent commentary we suggested that the outsized move in commodity stocks has enabled aggressive upside in key commodity based markets, most notably Brazil, that have assumed leadership of the global equity rally from China as that market has corrected since early August.
But although it has suffered through a significant correction the Shanghai Composite, that had more than doubled off last October’s lows before embarking on its first serious correction, appears set to challenge its highs.
It didn’t always look like the correction would yield to another rally attempt. At better than 20% the correction was significant. The market bounced weakly and then embarked ominously on a second leg lower. But last month the composite found its footing. Upside was halting and distribution threatened the move, but today that market broke forcefully above an important resistance area and closed at the highs of the session.
It is now perfectly situated to make a run at the August highs. Success is not assured and in our view failure here would be a cautionary sign for the American markets. But given the volume of the recent gains and eager high of day closes we do not think it is likely to stumble. While that wouldn’t assure continuation to new recovery highs it indicates that the global bull move is not yet finished and corrections continue to be buying opportunities until we get less persuasive signals.
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