We’re starting the new trading week with a big sell-off rattling global financial markets due to the Evergrande collapse in China.
Evergrande — one of China’s largest lenders from autos to properties — is the contagion risk that keeps on giving. The Chinese real estate developer is in free fall right now with $305 billion in bad debt floating around the world.
Regulators have warned that the company’s billions of debt and liabilities could result in default, igniting a wave of problems to China’s financial system — if its debt is not taken care of soon.
This is sending shockwaves throughout the global market and investors are spooked.
I’ve been speaking about my expectations for more volatility and bearishness in late September and October for a little over a month now.
Now is the time for traders to look at the totality of their market exposure and strategies, and ask themselves if they’re properly prepared.
As you know, I focus on short-term trading and hedging. I trade the short side as often and effectively as I do the long side… This is a skill you’ll need in the coming months… especially with the China Evergrande collapse.
Here’s what I’m doing this week…
The China Evergrande Collapse and Charts that Matter This Week
Hong Kong is ground zero for the last round of bearishness. And so I’m paying close attention to the iShares MSCI Hong Kong ETF (NYSEArca: EWH).
I actually expect things to get much worse in Hong Kong stocks, and for that sentiment to spread to U.S. equities — on a more limited basis, but still bearish.
A breakdown to the COVID-19 lows in EWH is now something I see as highly likely.
Just take a look at its chart below…
Another chart I’m looking at this week is the S&P 500. In the Sept. 7 report I sent out, I was looking for a pullback in the S&P 500 to the 4,300 level, which represents the 100-day moving average.
That would be a 5% pullback and a bonafide hysterical crash by today’s standards. But the chart is looking like it’s starting to sag and I don’t expect the first support level of 4,400 to hold.
Now today, Sept. 20, might be the day to test that 4,300 level. A bounce at the 100-day moving average would be optimal.
A failure to hold that support would see us next test 4,100, and then the huge psychological level of 4,000.
If you have any questions or comments about the China Evergrande collapse and the charts I’m watching this week, make sure to send them to jeff@joyofthetrade.com.
As always, stay ahead of the markets, especially these choppy ones, by subscribing to our YouTube channel.
