We got the China mini stimulus overnight and the reaction was quite bearish. The China market gapped up and then sold off for most of the day, finishing near the day's lows. The stimulus was well telegraphed. I don't think Chinese officials can do much at this point, they are in a pickle. The only way they can save it from crashing is printing a ton of money, but will they be willing to do that if it means that the yuan gets pummeled and they build more overcapacity and useless buildings?
As for the S&P, it looks like we are closing in on a top, with new highs lagging, Nasdaq weak, and positive seasonality fading quickly. The US economy is not strong enough to withstand a QE free environment for long. We saw the same thing happen in 2010 and 2011 when QE1 and QE2 were nearing an end, the markets started weakening anticipating less liquidity.
I am easing into a long Treasuries, and short China position for a longer term trade. I would like to build up a full position by early next week.
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