dirtyGum

The stock market rally we that we have enjoyed this year, from the abyss of March, can truly be attributed and credited to China's CSI 300 performance.

While our stock market continued to tumble into March, China on the other hand, failed to make new lows. China bottomed out last November, and has trended higher ever since.

There seems to be a correlation between the CSI 300 index and Copper futures. They both seem to have similar patterns (see images below*).

China is getting ready for its 60th anniversary of the Communist Party rule in October 2009. Premier Wen wants economic growth and stability leading up to the anniversary, as the whole world will be watching.

This reminds me of last year, when China held the summer Olympics. They were aggressively spending and growing to put on the greatest show ever. This led the CSI 300 to all-time highs of 5877 (10/16/2007). There was a subsequent push higher, but failed at 5696 (1/15/2008).

Everyone was screaming that it was a massive bubble, similar to the dot com bubble. Prices fell 44% to 3267 (4/21/2008) only to stabilize briefly into the summer Olympics. The brief rally took prices higher to 4055 (5/5/2008) only to continue the precipitous drop to 1627 (11/4/2008).

When the dust settled, the CSI 300 had fallen over 72% from its all-time highs of 5877! All this occurred in thirteen months.

In the middle of June 2009, the CSI 300 broke an important resistance level of 3000. It appears to have its eyes set on 3750, which represents a 50% Fibonacci retracement level (from the highs of 5877 to the lows of 1627). Expect some pullback at that level, as 50% retracement levels are strong support or resistance points.

The 3750 level is only 6.6% away from Friday's close of 3519. As we approach that level, I will focus on copper's reaction. There is support at the $2.00 level on copper.

One way to play copper is Freeport McMoran (FCX). This stock will be reporting earnings this week (July 20th, AMC).

If the CSI 300 index starts to pull back from the 3750 level, I will watch to see if the 3000 level will hold.

Will history repeat itself, and cause our stock market to follow the CSI 300's lead? Only time will tell.

CSI 300 Five Year Chart