Stock market fever hits China ahead of holidays. Will it last?

There are reports of long lines as Chinese brokerages as stock market fever quickly grabs China. The moves have been epic, including another 8% rally in the Shanghai Composite today.

The early verdict from the stock market reaction seems to say that the government has found the right combination of monetary and fiscal stimulus. With China, you never really know but I would have loved to see more on the fiscal side.

What makes this stock move less-convincing than usual is this chart:

I talked about this chart extensively in last week’s webinar and there is a big short squeeze ongoing here, that’s exaggerated the moves.

The thing is, rallies from major bottoms always start with violent short squeezes. So there is no dismissing it out of hand, but it should soon morph into a normal bull market with the usual pullbacks and whatnot.

What could could that for a few weeks is the Chinese calendar. Chinese markets are closed for the remainder of the week so we will have to watch US ETFs as a sign of what’s to come. I wouldn’t say those are particularly good at highlighting what’s coming though and I imagine there will be a buzz building domestically in China for markets to reopen. That could create some real drama next Monday.

Finally, here are a pair of charts that make a better case that we’re early cycle in the global growth trade:

1) Caterpillar shares hit an all-time high (weekly chart)

2) AUD/USD rises to the highest since Feb 2023 (daily chart)

This article was written by Adam Button at www.forexlive.com.