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Shanghai vs. SPX: The Divergence Widens, and the Valuation Gap Expands


Since this year's Feb pullback lows, the Shanghai Composite Index (SHCOMP) has surged by over 60% into today's new multi-year high, while the SPX has climbed 7.3% off of its Feb low, but actually has been flat since its Feb high at 2119.59.

Since late Feb, while the SPX has been sideways, the SHCOMP is up 49%!

Global investor perceptions that the PBOC is and will continue to aggressively ease to stimulate growth juxtaposed against perceptions that the Fed is looking for an appropriate time and the right conditions to raise rates, and become less accommodative generally, justify the divergence, if not the magnitude of the price moves.

From a technical perspective, although during Q3 and Q4 we were beating the drum here about investors reducing exposure to SPX and increasing exposure to Shanghai (CAF), the post-Feb advance has exceeded my "outlier" target zone of 4000-4300, which suggests that the SHCOMP is experiencing a vertical speculative upside blow-off.

If there is any truth to my suspicions, then there is an increasing likelihood of a parabolic rollover to the Shanghai pattern, which will end badly for speculators who overstay their welcome.

Should such a scenario unfold, I wonder if the SPX will be immune to a "Shanghai parabolic?"

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