[00:01] Today, we're going to take a look at the price action of the S&P 500 and the Shanghai SSC composite. This chart is based on weekly closing prices back to January 2015.
[00:15] The S&P 500 is in blue with the Chinese index in red. Apart from a couple of price spikes by the SSC in 2015, here and here, the two indices have moved more or less in tandem.
[00:31] And it's worth noting that both of those spikes eventually returned to join the S&P 500 here and here. Then in November 2016, coinciding with the U.S. presidential election here,
[00:48] the two still basically moved in sync, but at a different rate of ascent. You can see the spread between the two lines grew wider indicating that the SSE was losing momentum relative to the S 500 But what happening now is more significant than a loss of momentum It is actually a true price divergence that started occurring in March of this year coincidentally
[01:14] about the same time Trump started talking tough on tariffs. This divergent action of the S&P 500 seems to imply that investors have every confidence that the U.S. will win the trade war.
[01:28] I'm not so sure. I fully expect these two indices to converge soon. Given the extreme bullish sentiment and market valuations currently in the U.S. markets,
[01:40] I believe the most likely outcome is for the S&P 500 to decline. If it just played catch-up to the SSE, that price target would be around $2,300 or less.
[01:54] This would essentially wipe out all the gains for 2017 and 2018. Thanks for watching my video and please subscribe for future postings of stock market divergences.