China will be the ‘trigger to a sell-off’ in US stocks: Trader
by Annie Pei
Will China's potential market woes drag the U.S. down with it?
The Asian country's market may have rallied after a mixed performance in April, but China's stocks (FXI) remain on a downward trend, with American analysts and traders watching nervously, waiting for the U.S. markets (SPY) (DIA) (QQQ) (IWM) to potentially follow.
"I think China is the absolute trigger to a sell-off of the market because they've basically spent the first half of the year trying to pump their economy, expanding their credit tremendously," said Boris Schlossberg of BK Asset Management on Tuesday's "Trading Nation."
"But as you can see, they're just not able to grow the economy at the pace they want, and I think any kind of a break in the second half of the year, especially with the Chinese yuan, could really trigger a massive sell-off across the world."
Weakness in the Chinese economy has come to the fore this week, as the Caixin purchasing managers index fell for the 14th straight month in April, and missed economists' estimates. Meanwhile, Chinese stocks have turned out poor performance, falling sharply at the beginning of the year and failing to recapture any real momentum.
"This particular index has been making a series of lower lows and lower highs," Piper Jaffray technical analyst Craig Johnson said Tuesday on "Trading Nation." "The recent price action to us looks like a relief rally and we're coming right up to a point in time where if we don't reverse this downtrend, we're likely to fail."
But Johnson also contended that though China and the U.S. economy are linked, past Asian market downturns have not affected the American economy. He specifically points to Japan's economic troubles two decades ago to make his point.
"There was a lot of discussion that the rollover in the Nikkei (NKY) (EWJ) was going to take down the U.S. market and that was not indeed the case. So, I'm a little skeptical that we're going to see the U.S. markets get dragged down with China coming down," he said.
Courtesy of cnbc.com