Category: China & HK

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China Shouldn’t Let the Korean Crisis Go to Waste | RealClearWorld

Alex Berezow posts:

Why is China maintaining allegiance to the North? As Andrei Lankov explains in the New York Times, there are two main reasons: (1) Regime change could result in chaos, meaning thousands or millions of refugees swarming into China, not to mention the possibility of the North’s weapons getting into the wrong hands; and (2) A unified Korea would be a U.S. ally. China doesn’t like either of those outcomes, so it prefers to maintain the status quo. Lankov concludes:

China faces a choice between two evils: a nuclear North Korea or a collapsing North Korea. And a collapsing North Korea clearly represents a greater evil.

Read more at China Shouldn't Let the Korean Crisis Go to Waste, RealClearWorld – The Compass Blog.

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Asia: Singapore breakout, ASX 200 selling pressure

Singapore’s Straits Times Index broke long-term resistance at 3300, signaling an advance to the 2007 high of 3900*. Troughs above zero on 13-week Twiggs Momentum strengthen the signal.
DJ Shanghai Index

* Target calculation: 3300 + ( 3300 – 2700 ) = 3900

India’s Sensex followed through above resistance at 19000. Breach of the descending trendline would indicate a primary advance to 22000*. 13-week Twiggs Money Flow below zero, however, signals selling pressure and reversal below 19000 would warn of another test of primary support at 18000.
BSE Sensex Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

China’s Shanghai Composite is again testing medium-term support at 2150. Failure of support would warn of a decline to test primary support at 1950/2000. Reversal above 2250, however, would penetrate the descending trendline, indicating another test of 2500.
Shanghai Composite Index

Japan’s Nikkei 225 continues to climb, with a steeply rising 13-week Twiggs Money Flow indicating strong buying pressure. Target for the advance is 15000*.
Nikkei 225 Index

* Target calculation: 11500 + ( 11500 – 8000 ) = 15000

The ASX 200 is testing resistance at 5150. Breakout would offer a target of 5400*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Failure of support at 4900 would signal a reversal.
ASX 200 Index

* Target calculation: 5150 + ( 5150 – 4900 ) = 5400

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Nikkei and ASX 200 rally, while China & Europe weaken

Respect of support at 1540 and the bottom trend channel indicates a S&P 500 rally to test 1600 and the upper channel line. Failure to break resistance at 1600 would warn of a correction as signaled by mild bearish divergence on 21-day Twiggs Money Flow.

S&P 500 Index

* Target calculation: 1350 + ( 1350 – 1100 ) = 1600

The FTSE 100 also respected support, at 6220, but a tall shadow on Monday warns of selling pressure. Reversal of 21-day Twiggs Money Flow below zero would strengthen the signal and breach of support (6220) would signal a test of the primary trendline at 6000.
FTSE 100 Index

* Target calculation: 6220 – ( 6420 – 6220 ) = 6020

Germany’s DAX broke medium-term support at 7500. A 21-day Twiggs Money Flow peak at zero warns of selling pressure. Follow-through below 7400 would signal a test of primary support at 7000. Recovery above 7600 is unlikely, but would test the descending trendline at 7700.
DAX Index

* Target calculation: 7500 – ( 8000 – 7500 ) = 7000

India’s Sensex broke resistance at 19000. Respect of support at 18000 and the rising trendline indicates the primary trend is intact. Mild bullish divergence on 21-day Twiggs Money Flow signals buying pressure. Expect consolidation or short retracement, but follow-through above the descending trendline at 19200 would indicate an advance to 20000.
BSE Sensex Index

* Target calculation: 19000 + ( 19000 – 18000 ) = 20000

China’s Shanghai Composite is testing medium-term resistance at 2250. Breakout would penetrate the descending trendline, indicating the correction is over.
Shanghai Composite Index
Unfortunately the Dow Jones Shanghai Index respected the descending trendline Tuesday, indicating another down-swing to the lower trend channel.
DJ Shanghai Index

Japan’s Nikkei 225 is the star performer, when measured in Yen. Sharp rallies, with frequent gaps, followed by short retracements indicates a strong up-trend. As does 21-day Twiggs Money Flow oscillating clear above the zero line.
Nikkei 225 Index

The ASX 200 met some resistance at 5020, but rising 21-day Twiggs Money Flow indicates buying pressure and breakout would signal a test of 5150.
ASX 200 Index

* Target calculation: 5025 + ( 5025 – 4900 ) = 5150

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Asia: Japan rises as gold falls

Japan’s Nikkei 225 index is in a strong primary up-trend as the BOJ commences asset purchases on a massive scale. This is a tectonic shift in the market. Larry Edelson (as quoted by Barry Ritholz) has the most convincing explanation of the sharp fall in gold:

The wicked and aggressive devaluation of the Japanese yen is setting off a massive stampede OUT of gold and into cash and other assets…….Why are the Japanese dumping gold, especially when their currency is being devalued? It’s simple. The fall in the Japanese yen caused the price of gold in yen to spike sharply higher. So Japanese investors are cashing in their profits.

…and buying stocks.

Nikkei 225 Index

* Target calculation: 11500 + ( 11500 – 8500 ) = 14500

India’s Sensex corrected to support at 18000; breakout would warn that momentum is failing and a test of primary support at 16000 likely. Bearish divergence on 13-week Twiggs Money Flow warns of a (primary trend) reversal.

Sensex Index

China’s Shanghai Composite Index is testing medium-term support at 2150. Rising 13-week Twiggs Momentum suggests a bottom is forming, but that does not rule out another test of primary support at 1950/2000. Respect of 2150, however, with breach of the descending trendline, would be a bullish sign suggesting an inverse head-and-shoulders reversal.

Shanghai Composite Index

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One Soviet Leader China Could Emulate…and it’s not Gorbachev | The Diplomat

Professor Minxin Pei analyzes the options facing the Chinese Communist Party:

…it appears that what informs the political thinking of China’s new leadership is the experience of the late-Soviet regime. In particular, three different leaders and their policies apparently weigh heavily on the minds of the new occupants of Zhongnanhai. Having endured a decade of political stagnation amid rapid economic growth, China’s new leaders are obviously not in a mood to try another version of the Brezhnev model, the essence of which is pretending to govern while doing nothing in reality. Yet, aware of the enormous risks of introducing democratic reforms into a sclerotic political system, they abhor the radical Gorbachev model even more.

Read more at One Soviet Leader China Could Emulate…and it’s not Gorbachev | The Diplomat.

Their problem is that the other roads lead to nowhere and eventually they will be forced to embrace democratic reform. Rather than rejecting the Gorbachev option, the CCP should analyze the process and look for ways to minimize the disruption. Gradual transition to a central governing council of 7 to 9 elected officials representing all major political parties, with the CCP initially holding the majority of seats, seems the lowest risk alternative.

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Will the Chinese Be Supreme? | Ian Johnson | The New York Review of Books

Ian Johnson highlights how China’s strategic blunders have painted it into a corner:

Just as [Pre WW I] Wilhelminian Germany should surely have seen that building a blue-water navy would cause Britain to form alliances against it, so too should China understand that demanding control over islands far from its shores but close to its neighbors’ would cause a backlash. (Here one thinks not so much of the Senkaku/Diaoyus but of the shoals, reefs, and islets in the South China Sea.) Even the battle for the Senkaku/Diaoyus seems to have no satisfactory endgame for China except a permanent state of tension with its most important neighbor.

……..today the country’s tactics have left it surrounded by suspicious and increasingly hostile countries; indeed, it’s probably no exaggeration to say that China has no real allies.

Read more at Will the Chinese Be Supreme? by Ian Johnson | The New York Review of Books.

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China’s Glass Ceiling | Geoff Dyer | Foreign Policy

Geoff Dyer points out why China’s Remnibi cannot compete on the international stage with the dollar, even if China’s economy grows larger than the US:

For the renminbi to assume a central role, China would also have to make massive reforms to its own economy. The key to Chinese state capitalism is control over a relatively closed financial system, which allows the Communist Party to funnel huge volumes of cheap credit to select projects, industries, and companies. But to have a truly international currency, one that the world’s central banks want to hold, China would have to let investors from around the world buy and sell large volumes of Chinese financial assets. As a result, Beijing would have to dismantle that system of controls. It would need to permit capital to flow freely in and out of the country, let the market set interest rates and allow the currency to float. An independent legal system and transparent economic policy-making would also be useful. China has a choice. It can have an international currency that might challenge the U.S. dollar or it can keep its brand of state capitalism that has driven the economy and kept the Communist Party in power. But it cannot have both.

Read more at China’s Glass Ceiling – By Geoff Dyer | Foreign Policy.

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Asia tentative

Dow Jones Japan Index was tentative Monday, the inside day indicating hesitancy. Recovery above 70.50 would signal continuation of the primary advance, while penetration of the rising trendline would warn of a correction.

Dow Jones Japan Index

Dow Jones Hong Kong Index met resistance at its former support level. The Hang Seng Index is testing medium-term support at 22000. Failure appears likely and would test primary support — and the rising trendline — at 21000.
Hang Seng Index

The Shanghai Composite Index found support at 2250 for the third week in a row. Rising 13-week Twiggs Money Flow indicates buying pressure. Respect of support would be a bullish sign: a shallow trough followed by breakout above 2450 would signal a primary up-trend. Failure of support, while less likely, would test primary support at 1950/2000.
Shanghai Composite Index

* Target calculation: 2450 + ( 2450 – 2250 ) = 2650

India rallied Monday, but failure of support at 18800 would test the primary level at 18000.  Declining 13-week Twiggs Money Flow continues to warn of selling pressure. Failure of 18000 would indicate a primary trend reversal.

Sensex Index

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Asia finds relief

Japan found relief from the overnight selling. Dow Jones Japan Index is back testing resistance at 70. Breakout would signal continuation of the primary advance.

Dow Jones Japan Index

Dow Jones Hong Kong Index is undergoing a correction but found support at yesterday’s low of 464.
Hang Seng Index

India is falling today. The Sensex is likely to re-test support at 18800. Breakout above 20200 would signal a primary advance to 21000*, but bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure. Reversal below 19000 would warn of a correction to the primary trendline at 18000. Failure of 18800 would confirm.

Sensex Index

* Target calculation: 20 + ( 20 – 19 ) = 21

China is neutral Tuesday, but the Shanghai Composite broke support at 2250 on Monday, warning of a down-swing to primary support at 1950/2000.
Shanghai Composite Index

* Target calculation: 2450 + ( 2450 – 2250 ) = 2650

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