- New Science in old markets -

Stocks in Asia. Corn

It has mystified some people why the Chinese stock market has been stuck in a trading range for the last five years despite China's well-publicised heroic economic growth rates. Setting aside any questions about the accuracy of those numbers, this probably tells more about the weird dominance of economists in modern market thinking than it does about the markets themselves. Prices diverge for such long periods of time from 'economic fundamentals' that the study of them becomes functionally useless for market purposes. Despite this, any comment on markets that might attract media attention has to be couched in economics jargon, even though the speaker may not be fluent.

Eventually though, as Ben Graham first pointed out, the market is a 'weighing machine' whose scale will reflect the true mass of the market. We may be approaching that moment in China. First, the longer-term picture, showing the overall movement of the Chinese Broad Market index, which has the habit of sideways trading followed by a speculative rush upward:

China monthly comp

As noted in the chart, the Chinese contribution to the recent drop in world stock markets was quite small and the subsequent bounce has been brisk. Both these actions are a sign of resilience and usually have some implications for what happens next - the market will perform better than its peers. We also have a new monthly-scale compression, from which the market has yet to break upward (we will only be able to see that at month-end) but prices are trading above it, so far.

Looking a little closer, we see that there have also been a series of weekly-scale compressions in the same instrument (1st chart, below) in which the market has compressed, moved a little higher, compressed again and again moved higher. This is bullish:

China wkly, Japan dly comps

Nearby, the Japanese equity market is also looking bullish. There (second chart above) a daily-scale compression recently formed and then broke up. As often happens, prices then fell back to re-visit (we say 're-test') that compressed area before rebounding. This usually means that the 'proper' move is starting and so the prospect is for higher price there too. Buy both.

Lastly, Corn. This has been weak due to the problems in both livestock rearing caused by African Swine fever in Chinese pigs and meat processing in the US caused by Covid19 which has closed many abattoirs. Corn is used as feed for livestock and this has depressed sentiment. An animal that has not been slaughtered keeps on eating however, so the current cheapness of Corn prices is probably a 'common sense' buying opportunity. We also have extension signals:

Corn wkly & dly bott exts

Buy it too.

All signals courtesy of software supplied by our friends at Parallax Financial Research www.pfr.com