 |
 |
Dallas, TX
November 2, 2009, 08:00 EST |
 |
Dr. Joe Duarte's Market I.Q. |
 |
 |
|
|
 |
The Internet's Intelligence Digest
Intelligence, Market Timing, And Trading Strategy For Traders and Investors
|
|
Is A Chinese Banking Crisis Ahead?
|
|
|
 |
 |
What's Hot Today: |
|
U.S. stock index futures were higher on Monday morning.
Global markets were mostly higher overnight.
Here's what's important to know about this stock market, right now. The S & P
500 got rocked on October 30th. The index has now closed below its 20 and its
50-day moving averages, two important support levels.
But savvy chart watchers should be paying attention to the lower Bollinger Band,
the line two standard deviations below the 20-day moving average. That's where
the S & P 500 closed on 10-30, just as you'd expect it to close if the market
is behaving normally, based on technical principles.
Something else to watch are key oscillators, such as RSI and MACD, which are
also oversold. What we're trying to say is that Friday's close was bearish, but
that it's not necessarily going to be straight down from here for the stock market
as hopeful money coming in and short covering at key points such as the lower
Bollinger Bands can increase volatility.
What's important from an investor standpoint is to remain patient, and not jump
into this market, on the short or the long side during a period such as this,
unless you are a very experienced investor.
The S & P closed below 1040, which is bearish. 1040 is now a resistance level
as are the 20 and 50 day moving averages. That means that stocks could bounce
to any or all of those levels any day. If they close above those now important
resistance levels, we will know more.
Today's Economic Calendar:
- Motor Vehicle Sales
- ISM Mfg Index 10:00 AM ET
- Construction Spending 10:00 AM ET
- Pending Home Sales Index 10:00 AM ET
- 4-Week Bill Announcement 11:00 AM ET
- 3-Month Bill Auction 1:00 PM ET
- 6-Month Bill Auction 1:00 PM ET
News For Thought
Small business finance heavyweight goes into pre-packaged bankruptcy as it
gets no bailout. According to The New York Times: "Three months ago, the
CIT Group barely averted what it considered to be a ruinous bankruptcy filing
that would likely have put the 101-year-old lender out of business. On Sunday
afternoon, the company filed for Chapter 11 — but under a so-called prepackaged
bankruptcy plan that will enable it to emerge from court protection by the end
of the year, under the control of its debtholders." The effect of this bankruptcy
are very uncertain as "CIT was the nation’s largest provide of what is known
as factoring, a type of lending used heavily by retailers. The company has spent
months trying to reassure its clients that it will remain open for business as
stores ramp up for the holiday season."
Small business defaults rise. As CIT, a major small business lender goes
into bankruptcy, the nation's largest employment sector is starting to show signs
of increasing wear and tear. According to Reuters: " Defaults by small and medium-sized
U.S. businesses on the loans, leases and lines of credit they use to finance
capital equipment investment rose in September as lenders remained reluctant
to extend fresh financing, PayNet Inc reported on Friday."
One glimme of hope is the fact that "accounts in moderate and severe delinquency
decreased during the month, a potentially encouraging sign that some businesses
borrowers are finding it easier to meet their obligations."
Heavy central bank calendar this week could be a market mover. According
to Reuters: "There are meetings at major central banks, including the Federal
Reserve and European Central Bank, as well minutes from the past meetings of
others. Then there is a G20 finance ministers meeting. To top it off, investors
will be have to digest the monthly U.S. jobs figures, which is always a sensitive
report and goes directly to another investor fixation, the state of the world's
largest economy."
IPhone Shock in China. According to The Wall Street Journal: "Apple's
iPhone got a lukewarm welcome in its official Chinese debut, with no sign of
the sort of sellout reception that greeted the smart phone in other countries." What's
behind it? This isn't 1969 any more, which means that some people already bougth
the phone abroad. Plus it's expensive, and there are politics involved. According
to The Wall Street Journal: "Analysts have said that the Unicom iPhone's debut
in China faces several challenges. Many potential customers have already bought
iPhones from unauthorized sellers or brought in the phone from Hong Kong or other
countries, putting an estimated two million iPhones already in use in China,
according to research firm BDA China Ltd. Apple and Unicom charge $730 to $1,020
for the iPhone, not including discounts on service, making it more expensive
than gray-market iPhones in China and legitimate iPhones in many other markets.
And an important feature, Wi-Fi Internet service, has been disabled on Unicom's
iPhones to comply with Chinese government rules."
|
|
|
Is A Chinese Banking Crisis Ahead?
|
|
 |
|
Chinese Bank Meltdown Could Sink Recovery But Probably Won't Happen
|
 |
|
|
America's banking crisis is well documented, as another nine
banks were shut this past weekend by federal authorities. The story is different
in China, at least on paper. Yet, there are signs in place that suggest that
China's banking system is more vulnerable than many suspect.
The Wall Street Journal reports that while "things still look good on the surface," due
to a "robust" expansion of bank loans, the nature of the loans itself is risky,
as it is increasingly backed by subordinated, low risk debt. That means that
if the company that took out the loan goes bust, the banks that made the loan
are at the bottom of the list of those who get paid.
In other words, as the year turns and China faces major banking policy decisions,
it faces some tough choices as it will have to decide on whether to focus on
economic growth by "unleashing" another wave of loans, or whether to focus on
bank balance sheets and try to clean up some of the subordinated debt backed
loans.
So far, as the Journal reports: "Capital adequacy ratios remain comfortably above
the regulator's 8% baseline, but they're in decline. At Bank of China, which
has seen the fastest lending growth of the big four this year, capital adequacy
had fallen to 11.63% at the end of September, from 13.43% at the start of 2009." That
means that the margin of safety is getting smaller, and that a medium shock to
the system could do more damage than it would probably do under better circumstances.
How close to the bone is the situation. According to The Journal: "Bank of China's
long-term subordinated bonds out of its capital adequacy calculation, for example,
and its ratio would be about 1 percentage point lower. Subordinated debt is potentially
a systemic risk, too, with at least half the issuance held by other Chinese banks."
And there is more. The Journal notes the following: "A concern that's accompanied
the rise in lending is that large parts of the new loans made this year will
eventually run into trouble. Here too, things appear tidier than they may actually
be: Chinese banks hold high levels of so-called special mention loans, which
are often rolled over or extended even when they've been non-performing for some
time."
In true Chinese fashion, the government has caved in and papered over the situation
in order to avoid a crash. The Journal reports: "Aware of these frailties, but
not wanting to be too strict, the CBRC has recently wavered. Having this summer
proposed tough rules over the classification of subordinated debt, it watered
down the proposals last month."
At the moment things are quiet due to seasonal factors. Yet, as the Journal points
out " Because banks, once handed quotas by the CBRC, front-load much of the year's
lending, a slowdown in lending rates at the big banks is naturally occurring.
Their share of new lending dropped to just 21% in September from around 70% in
the first half of 2009. For the CBRC, the truly delicate decision is going to
be whether to see to it that this slowdown continues through the new year."
Conclusion
A Chinese meltdown has been at the top of the worry list for years. Yet, it never
seems to come. That's because the Chinese government usually finds a way to jive
(euphemism for lying) its way out of trouble by delaying, cajoling, and downright
jiggering with figures.
Because the major global banks, and the likes of Goldman Sachs and Barclays have
too much money sunk into China, no one ever complains and things seem to disappear.
This could be just another one of those instances. Or it may not be. A whole
lot depends on what happens elsewhere, such as the U.S.
If America's recession hits a second down leg, it could have some global repercussions
as U.S. money tries to find a home elsewhere. If enough U.S. and European money
were to leave China, for whatever reason, it could make life hard for Chinese
banks.
At this point, though, the cynic in us, which is growing by leaps and bounds
given what we're seeing these days, suggests that the odds of a Chinese banking
crisis of any magnitude are extremely low. If only U.S. regulators would be as
creative as China's, we would still be in the midst of building a housing bubble,
not drowning in its aftermath.
We guess that there is something to be said about lying and cheating at a Universal
level. So much sleight of hand to learn, and so little time.
Know when to sell and how to make money when the market falls. Get a detailed
trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for
All Seasons. Also Available As Kindle Books. |
|
|
|
|
|
Market Moves - Stock Of The Day
|
|
|
|
S & P SPDR ETF (NYSE: SPY) Tries To Hold On To Bull Trend
|
|
|
|
| |
The S & P SPDR ETF (NYSE: SPY) has taken it on the chin lately,
but is trying to get off the ground.
Chart Courtesy of StockCharts.com
Our trading plan calls for daily chart watching, with special attention
to key support and resistance levels such as the 20 and 50-day
moving averages for important indexes and ETFs as well as individual
stocks.
Last week, SPY fell below its 50-day moving average twice. Once on Wednesday,
a break from which it rebounded on Thursday, and again on Friday, after Thursday's
bounce, to the 20-day moving average, failed.
On Monday, the bulls are trying to move the major indexes back above the 50-day
moving average. And they may succeed. But tomorrow things may fall apart again,
or not.
The point is that no one really knows what's going to happen today, or tomorrow.
And that means that it's best to be on the sidelines, unless you are a very nimble
short term trader, which is not the focus of our service.
We're looking for signs that an advance or a decline could be in place for weeks
to months. That's why we use the 20 and 50-day moving averages as guidelines
for the short and intermediate term trend.
For now, only one thing is clear. This market is going to be volatile. And volatility
means that a potential change in the trend is possible. The trend, up to now,
has been up. Now, that is in question.
If you've followed our advice, your levels of cash have risen over the last few
weeks, and you have very few open positions.
That's a good place to be right now. If things change, we will adjust accordingly.
There is no reason to be impatient. You aren't missing anything right now.
That's why we have a trading plan. That's why we follow it, so that at times
like these we are protected from the day to day nonsense of hedge funds trying
to make a buck on a few ticks.
|
|
|
|
