China’s Plummeting… Is It Time To Sell Stock?
Chinese Stocks Plummet – Should We Sell Stocks Too?
It’s ugly out there. You can’t go three minutes without seeing news on the plummeting market in China. Everyone’s asking… is now the time to sell stocks?
I’ll give you the answer in just a moment… but first… how bad is it in China?
China’s U-G-L-Y!
Just look at this chart of the market.
This is a weekly chart of the FTSE China 50 Index $FXT. It tracks some of the biggest stocks in China.
As you can see, we’ve given up not only the gains for the year… but the market is quickly approaching it’s 200-day moving average. And it’s already blown through the 50-day moving average.
It’s an ugly chart and one you need to keep an eye on.
Why?
I have one word for you – contagen.
Look, for the last few years, China’s been a big global economic driver. They have billions of people working and spending and driving their economy. But their economy is looking weak.
How do I know?
If you’re a long time reader of this newsletter, you know that the stock market is forward looking. The stock market represents what investors see down the road.
And right now investors in China are saying the economy looks ugly…. really ugly.
The bloom is off the China rose…
And it may take a while for this flower to bloom again.
What’s going on?
China’s Market Growth Is Slowing…
After years and years of rapid and ever expanding growth… China is finally starting to slow down.
Now before you throw up your hands in frustration, let me tell you something. This is NORMAL.
China’s now reaching a stage of growth where continuing to grow at 10% rates or more is virtually impossible. Their economy is so big, and so developed, the easy gains have been made.
What we’re seeing is a seismic shift from rapid Chinese growth to moderate Chinese growth.
Any way you slice it, their growth rates are still better than the US markets!
Now here’s the risk…
The Real Risk Of The Chinese Implosion…
The reason China’s important is because of all of its trading partners. If China slows significantly, it will impact countries who trade with China.
Think Australia, which sends billions of dollars of commodities to China. Think the US, who trades billions and billions of goods with China. Think Canada, another major supplier of goods to China.
If the major trading partner slows consumption, you’re going to see companies providing goods plummet as well.
And that’s the risk.
There are many US based companies that make a big portion of their profits in China. One example is Yum Brands $YUM… In mid-May, YUM was trading as high as $95… today you can buy the stock for about $85.
Freeport MacMoRan $FCX is a major provider of copper to China. Freeport was trading around $35 just 12 months ago… they hit a low of under $20 three months ago… today you can grab shares at $12. Just look at this ugly chart.
There are hundreds of companies just like these with big exposure to China… and it’s helping drive stock prices lower. This does impact the US markets, and puts added risk into our markets.
But that’s not what’s scaring me.
What Really Concerns Me About The Market Today
While China’s a risk… this chart scares me more…
This is the Russell 2000 Index which is a measure of the smaller stocks in the market. I’m concerned over this key chart. The index plummeted through the 50-day moving average and the 200-day moving average is providing minimal support.
So, we sell everything right…
NO. What you do right now is lighten up. If you have a big winner, sell half. Have a big loser, dump it and record the loss to offset future gains.
Move a big chunk of your portfolio into cash so you can scoop up deals if the market weakens further.
Finally, if you see a continued plunge below the 200-day moving average… start shifting more assets to cash.
You can’t be too careful right now… especially going into the September and October months. Those are historically the weakest months of the year.
Are you moving to cash? If not, why not? Let me know on the blog.
Good investing…
Brian Kent
Note: If you’re interested in learning more about Brian Kent’s Penny Stock All-Stars premium service… and learning about the stocks we’re trading for profit… you can get the inside scoop on penny stocks here.
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