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July 21, 2012 / redman59

Can China Pull It Off Again and Crush Some Stubborn Shorts?

Friday could be a big day as we get China Manufacturing, US Manufacturing, and US Nonfarm Payrolls. In reading the blogs at iBankCoin, I often see the word “China” written in posts by The Fly. This has caught my attention because I remember the summer of 2010. We saw major selling in May only to be followed by a big range for the rest of the summer.

Then on Sept. 1, 2010 China released their manufacturing data report and the overnight futures market exploded. The chart below shows the selling in May with the big summer range and then the beginning of a huge run starting with China’s manufacturing data.

Here is a news release from news.com.au titled “Highest share market close in three weeks” with some excerpts:

“Mr Kimber said Chinese manufacturing data reduced the possibility of a sharp slowdown in the world’s second largest economy and gave a boost to local resource companies.

The HSBC China Manufacturing PMI, or purchasing managers index, rose to a three-month high of 51.9 last month from 49.4 in July.

“Of course we had the Chinese numbers out today, which confirmed what (BHP chief executive) Marius Kloppers was saying last week,” Mr Kimber said.

“That basically people who were panicking about China slowing down to five or six per cent are wrong.””

Here is another release from MarketWatch titled “US Stocks Surge As Manufacturing Data Trumps Jobs; DJIA Up 220” with some excerpts:

“Asian shares posted gains overnight, buoyed by encouraging manufacturing data from China and better-than-expected growth in Australia, which allayed some near-term worries about the global economy.

In the currency markets, the euro rose 1% to $1.2817. The U.S. Dollar Index, which tracks the performance of the greenback against a basket of six currencies, fell 1.1%. The Bank for International Settlements reported that daily turnover in the world’s foreign-exchange markets has soared to $4 trillion this year.

Commodity prices rallied, with October crude-oil futures gaining 2.5% to nearly $74 a barrel, ahead of official oil inventory numbers. Oil prices tumbled in August amid growth concerns and unusually high inventory levels. Copper futures surged more than 3%.”

Below is a zoomed in view of the day that started a huge run that topped in May 2011 and the European news started to surface.

That following Friday we had the Nonfarm Payrolls and U.S. ISM Manufacturing data release in which the jobs report wasn’t as bad as expected and the ISM came in a little disappointing. Excerpts provided by MarketWatch “Stocks close higher on jobs optimism“:

“The market leaped after nonfarm payrolls data showed jobs slowing at half the rate predicted by economists. The Labor Department said the U.S. lost 54,000 jobs last month, about half of what economists had expected and matching the level of revised losses recorded the previous month.

The unemployment rate, calculated using a separate household survey, edged up to 9.6%, as expected, from 9.5% for the previous two months.

But the economic recovery still looks weak; data released Friday by the Institute for Supply Management showed a slowing expansion in the U.S. nonmanufacturing sector last month.”

Below is a zoomed out view from the day that encompasses both news events to when the market topped in May 2011.

Of course this is all speculative and I’m not calling a huge run. I can see a summer grind like 2010 which then fuels another nice run. I do like the correlation of current sentiment to the way it was during 2010 and those traders that failed to switch their mindset missed out. Also I am not saying that we had the huge run because of China, but it was a news catalyst and event followed by the not-so-bad jobs number that fueled the money into the market.

I also bring this up because commodities and the dollar are in the same state. Copper and Oil were getting sold and were fueled after these events and the Dollar was soaring, only to see it sell off after these events.

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