With all eyes on China it is interesting to note the big reversal by the Shanghai Composite over night. Shanghai is down almost 23% from year highs. Note the highlighted hammer candlestick today that could be an interesting inflection point resulting in potential reversal higher, at least a bounce.
Reuters writes yet another time about the China turbulence knocking down Asian stocks.
What many tend to forget that the actual correlation between Chinese stocks and the rest of the global stock markets is relatively low. Do note the huge support levels Shanghai is approaching on the longer term chart.
Below is a 2 year chart showing S&P 500 (white line) versus Shanghai Composite (orange line). The normalized percentage spread has gone one way only. Note that the spread is trading on the far end of the tail in the normal distribution chart.
We should of course look at China and what’s going on over there, but buying volatility in panic mode seems late, just as we pointed out yesterday.
VIX index made a relatively big reversal yesterday, falling 12% from highs.
Source: all charts Bloomberg
