Morning Comment: China....Crude oil.

The European markets and the domestic futures are all trading higher…on the news that Tom Brady has decided not to retire and return for a 23rd NFL season. (Sure, the story that the discussions between Russia and Ukraine about a cease fire are becoming more substantive probably has a LITTLE to do with this positive reaction in the marketplace, but we all know that the Tom Brady news has been the real catalyst this morning.)

The action in the entire global marketplace has not been bullish, however. Chinese stocks listed in Hong Kong were hit hard last night. The Hang Seng index fell 5%...the Hang Seng China Enterprises Index declined over 7%...and the Hang Seng Tech index closed more than 11% lower. The reason for the (further) decline was spurred on by more regulatory crackdowns (with Tencent receiving a record anti money-laundering fine)…and stories that Russia had reached out to China for military assistance (which could bring a backlash against Chinese firms). On top of this, China has shut down the city of Shenzhen and the Jilin Province over Covid. Jilin Province is a key technology hub, so this move is raising even more concerns about supply chain issues.

All of this news comes on the back of the reports last week that the SEC is getting closer to delisting some of the stocks here in the U.S. This, in turn, has stocks like BABA and JD trading down by ANOTHER 5% in pre-market trading today. Therefore, it sure looks like it’s going to be another rough day with anything related to Chin in the marketplace today.

However, we do want to reiterate something that we highlighted in our weekend piece. The FXI China large-cap ETF stood at its most oversold it has ever been seen on its RSI chart on Friday. (It is also extremely oversold on its Bollinger Bands chart.) It will obviously become even MORE oversold this morning. Therefore, as bad as things appear right now for this market, it is becoming ripe for at least a short-term bounce. Thus, if (repeat, IF) the Chinese authorities step to the plate to support their markets at all this week, we could see a ripe your face off bounce at some point in the very near future (even if it’s not a long-term bounce).......The old saying sometimes says, “buyer beware”…but when it comes to China right now, we think the sellers should be the ones who should “beware”…at least over the short-term. (First two charts below.)

Speaking of reversals from extreme technical levels, our call for a sharp decline in crude oil worked out very well. Yes, we were early, so we won’t take a big victory lap, but the 20% drop from the intraday highs in just one week shows that we were smart in sticking with our guns…and telling investors not to chase the commodity or the energy stocks a week ago.

The situation in eastern Europe is a precarious one. Therefore, oil could shoot back up at any time. However, we do want to point out that the MACD chart on WTI crude oil is experiencing a negative cross this morning. It’s only a very mild “cross” so far, so maybe it won’t amount to much (like it didn’t in February). However, if the negative cross becomes more pronounced (like it did in November and July of last year) it would signal that a further drop in oil prices is in the offing. The previous two negative MACD crosses that became “meaningful” were followed by a decline of 20% AFTER the cross took place.

Again, the headlines on the geopolitical front are going to be the more important catalysts for any significant moves in crude oil going forward. Therefore, as we said above, crude oil could bounce back at ANY time. However, since the energy stocks have not fallen as much as the underlying commodity so far, we’re still going to be cautious about jumping back into the group with both feet. We’re NOT saying that investors should sell their energy names…and we also think it’s okay to be nibbling on them this week. However, since the underlying commodity still looks vulnerable, we’re going to hold-off in suggesting that investors get aggressive on the energy stocks once again. (Third chart below.)

Matthew J. Maley

Chief Market Strategist

Miller Tabak + Co., LLC

Founder, The Maley Report

275 Grove St. Suite 2-400

Newton, MA 02466


Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.

Posted to The Maley Report on Mar 14, 2022 — 8:03 AM
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