ELAM: A Surprising Market Leader

Optimism has spurred mainland Chinese stocks to multiyear highs in recent days with the Shanghai Composite rising 16.5% over eight straight sessions of gains.

China Cautions Investors about Market Exuberance, WSJ today

It is important to watch the market, not the news on the markets. China has been in the news for all the wrong reasons. It is the suspected world center of the COVID virus. It has cracked down on Hong Kong dissent and arrested protestors. It has been fighting India along their border. Finally, we can throw in taunts in the South China Sea against navies of Viet Nam, Japan, and the US. Who would want to invest in that situation? Apparently quite a few!

Understand one would be chasing a vertical rise since the March 23 low. China Fund CHN is up from $16 to $25. The Shanghai Index soared from 2006 to 2008, 1,500 to 5,500 then crashing back to 1,700. A smaller rise in 2014 took it from 2,000 to 5,000, then back to 2,500. It hit 3,450 Thursday and looks ready to assault 5,000 once again. Emerging markets are challenging to trade.

As reported, the US has been in a two-tier market. The SPX, Major Market, and DJIA, have trended sideways this summer since a June 8 high. From a June low of 9,800, the NASD 100 has soared to 10,754. This is powered by the mania for the FANG stocks not to mention Tesla. Tesla is now valued at more than the combined total of GM, Ford, Toyota, and Fiat Chrysler. This is way more extreme than the China example cited above. One cannot be sure TSLA is really profitable. Such is the exuberance of investors at market highs.

Banks will report earnings this next week. Cullen Frost CFR has moved from $95 to $50 to $87 and now $66. Book value is $61. Prices are still falling and are below all four moving averages I track. We will be alert for a potential bottom.

After 45 days of consolidation, the Industrials may bottom during the remainder of July. Typically there is a seasonal rally into August. Check our weblog for updates.

Energy shares have pulled back from their June 8 high as well. West Texas Intermediate fell below the $40 mark. Energy has been the worst performer this year.

Social mood veers negative again. We suspect the Democrats will come to regret the Supreme Court decision allowing Cyrus Vance access to Trump’s tax returns. It cuts both ways The Biden Family has plenty of potential for subpoena fishing between Joe, his brother, and son Hunter. As if there were not enough reason to decline to run for office, this puts all future Presidents subject to endless fishing expeditions.

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