Let's have a look at our comparison chart between the Shanghai Composite and S&P 500, as we examine whether the SPX will continue to follow China higher.
Since October 8, when the Shanghai Composite returned after a one week holiday, the China index is up 11% and +26% from its major low in July. Through the August timeframe, we often discussed the hypothesis that the China bear phase from August 2009 ended in July 2010, and that China is leading the resurgence of global equity markets. Since its July low, the SPX is up "only" 17%, but if it is following the Shanghai (and the Shanghai is heading for 2990, a gain of another 4.5%), then perhaps the SPX is heading for 1235-1240 before the bulls reach exhaustion?
If that is the case, then the basic materials and mining stocks should derive some meaningful benefit. For the moment, one of our few long equity positions is Arch Coal (ACI), as my technical work still indicates that the natural resource producers will benefit from their "China connection."