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September 1, 2009 / Jeb

Market Correction, Sell Weak Holdings, Profit Taking Should Be First Priority

This past week I started seeing weakness in the Chinese Stock Market with several signs of downside volume and distribution.  If you remember it was the Chinese economy recovery which pulled us out of the March lows and has been a leader to push the global markets higher.  The past few weeks there have been several downside volume days in the Chinese market and this has led to fear that this rally has gone too far, too fast.  Supply is outpacing demand and a 15 -20% correction is highly possible.

I do believe the worst is behind us but we could see a considerable short term correction.  This next correction could be another opportunity to get bargain stock prices ready for another leg higher.

Take a look at the Chinese Etf. fxi

The price volume action has been quite bearish and this does seem to be a top here.  I don’t believe the global markets can continue higher if the Chinese markets which was the first glimmer of hope of a recovery begins slowing down.

One area of strength that should be noted is that gold and silver closed higher on safe haven buying.  For the past several weeks gold was trading in step with the equity markets but today this did not occur.  This shows good relative strength and could be a sign of safety during this correction.

Another chart which is important to show is that the DIA Diamond Etf made a reversal after a long leg up which is a sell signal according to my point and figure analysis.

fxiBunker down, raise cash, find strength and sell weakness.

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