Are we seeing a market top forming in the US? The NASDAQ took it on the chin again overnight, with speculative money fleeing stocks with flimsy business models and no earnings. It’s not panic stations yet, but as we said earlier this week, if prices fall below the February lows expect a deeper, more prolonged correction to unfold.
Here’s a chart of the NASDAQ:
It’s bad timing for the Aussie share market. In the past few days we looked set to break out to new highs. It was going to be onwards and upwards. But the futures show a hefty fall is on its way today (we’re writing this before the market open) meaning the new highs might not be sustained.
Is it stage fright? Every time the market makes a marginal new high, it backs off. Below is a chart of the All Ords over the past six months. The index breached the late October high in early March, followed by a sell-off. Then yesterday, it attempted to pop high on the open but the rally ran out of steam.
Weak trade data out of China for the month of March didn’t help. Neither did an admission from China’s Premier Li Keqiang that the 7.5% growth target was flexible, meaning China is bracing for lower growth rates this year and beyond.
The prospect of Chinese stimulus has buoyed the Aussie share market (and dollar for that matter) over the past few weeks. But any stimulus that China plans will be minimal. And its successful implementation relies on China’s leaders navigating the many problems posed by a bursting credit bubble. They will have their work cut out.
Cracks in China’s credit system have been prevalent for a while now. Recent weakness in the NASDAQ suggests the QE ‘taper’ is slowly starting to uncover fragilities in US asset markets too.
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