Forget the Fed: China Holds Key to Market's Near-Term Fate
Posted Apr 29, 2008 04:59pm EDT by Aaron Task in Investing, Internet
Related: GOOG, RIMM, AAPL, SOHU, BIDU, V, MA
Ahead of the Fed, major averages were relatively unchanged for a second straight day Tuesday. Now, it's "put up or shut up" time for the market -- and certain market watchers.
The Fed's rate decision Wednesday (and accompanying statement) could provide a catalyst for the S&P 500 to finally break out of its longstanding 1,270-1,400 trading range in a meaningful way.
I'm betting it will, based on a variety of factors, including:
Bullish sentiment from a number of "smart" investors featured on Tech Ticker in the past two weeks, such as David Herro of Harris Associates.
The market's recent focus on good news vs. bad; for example, Visa on Tuesday. After some early hesitation, Visa shares jumped 6.9% as traders focused on its strong earnings vs. cautious outlook. MasterCard's strength probably aided Visa's cause, and remember: It's not the news that matters, it's how the market reacts that matters.
Recent strength in big-cap tech favorites such as Google, Apple, and Research in Motion, evident again Tuesday as the Nasdaq 100 outperformed the Dow and S&P.
The likelihood of some "break" in the Microsoft-Yahoo stalemate soon. (CNBC says MSFT is going hostile – as early as tomorrow - while Tech Crunch adds names to its competing board slate.)
Recent strength in chip stocks (albeit not Tuesday) amid evidence DRAM and NAND memory prices may have bottomed.
Recent strength in China stock favorites like Sohu.com and Baidu.com after strong earnings, as well as Industrial & Commercial Bank of China, which trades in Hong Kong.
The China issue may be most critical of all to the bulls' case. As painful as recent months have been for the U.S. market, they've been brutal for Chinese stocks. After peaking at 6,124 in mid-October, the Shanghai Composite then tumbled more than 50% before its recent bounce. A bounce some China watchers believe will have legs.
"We believe that China equities bottomed last week with the stamp tax cut," writes Don Straszheim, Vice Chairman of Roth Capital Partners. "This cut, along with the declining negative sentiment was very positive. It bottomed the market. China stocks at home and around the world have rallied sharply. It is not over in our view."
To be clear (hopefully), I'm not a raging bull or trying to convince you (or myself) that the credit crunch is over or the economy doesn't face myriad headwinds. And I'm wary of the "fake breakout" possibiilty Helene Meisler described here.
But Wall Street moves to its own beat, and China has become the tail that wags the global financial dog. So what's good for China is good for the S&P 500 -- at least in the short-term.
To be is to do.(Socrates) To do is to be.(Plato) Do be do be do!!!!!(Sinatra)
