The broader market averages turned red this morning as the "Shanghai Surprise" Part II roiled the international markets overnight.
Shanghai’s benchmark index–which had set records for most of the last two weeks–tumbled 4.5 percent, while stocks in Japan fell 1.7 percent and those in Hong Kong dropped 2.3 percent. European markets also opened lower.
However, Shanghai’s decline wasn’t as steep as the 9 percent drop on February 27 that not only touched off a worldwide selloff, but managed to shave more than 3 percent off of the major U.S. indices.
This time the selloff didn’t begin with some loose talk about a recession from the former Fed Chairman, Alan Greenspan–it was the current growth figures from the Chinese economy that were to blame.
Released after the close, those figures showed a Chinese economy that was still growing by double digits. Chinese GDP beat market expectations, clocking in at a sizzling 11.1 percent.
Particularly worrisome, though, were the inflation figures. Like the GDP numbers, those figures sizzled too.
Inflation in the first quarter was 2.7 percent, up 1.5 points compared with the same period last year. It was the highest reading in the last two years.
Taken together, those figures prompted renewed worries that Chinese authorities would now have to raise interest rates to curb the growth in Asia’s second-biggest economy and keep a lid on inflation.
But while the prospect of higher Chinese rates set off a flurry of selling in markets around the world, the news barely created a ripple in U.S. markets. In fact, by noon the Dow had turned positive as the market shrugged off the Chinese news.
Clearly this was no tsunami. It was not even close.
But what the news did mange to underscore was the rebound in the major averages that has occurred over the last few weeks.
Unlike the market-rattling plunge that occurred at the end of February, along with one dire prediction after another from the bears, the rebound has been considerably quieter. In many ways it’s been a stealth rally.
With or without fanfare, the Dow did close at an all-time record high yesterday, finishing above 12,800 for the first time ever. It’s just another great sign from a market that seems to be getting stronger every day, since even the volume is now increasing to the upside.
In fact, the three-week upward move has been so strong that it is the now likely the correction is over.
And as we have said here before, a correction is all it was–an opportunity to shop for bargains.
If you don’t believe me, take a look at this chart. It tells the story much better than I ever could.
But as good as this looks, it doesn’t mean that the Dow is head straight up from here. Because, let’s face it, it does actually seem ripe for a small pullback right now.
Keep an eye on the 20-day moving average and look to buy on any dips to those levels, since any strength on the bid there will only help to confirm the move higher.
As for the tech-heavy NASDAQ, the news there is just as good. It has moved higher along with all of the other major averages, although weak earnings news this week has managed to slow its pace.
Nonetheless, not even weak earnings news from Yahoo could do much to ruin its run. Like the Dow, its chart looks pretty good and is a far cry from the days of the first "Shanghai Surprise."
Take a look:
Just like the Dow, this chart marks a textbook correction for the Naz. Buy on the dips.
It all means that we are likely headed much higher from here–to 13,000 and beyond.
Hard or soft landing, this market is growing stronger every day and now is the time to be long.
So for now, forget about all of that talk about a subprime contagion and a weak dollar. The asset economy is shifting gears–back into stocks.
Those waves out of the East are nothing more than ripples now. The bulls are ready to run.
Wishing you happiness, health, and wealth,
Steve Christ, Editor
