Big 200-Day Moving Average In Stocks … A Buy, Not A Sell

May 13, 5:00 pm EST

As we discussed last week, the Chinese government will use the yuan to counterpunch tariffs.

They’ve now weakened the yuan by 3% since last month.

If China were to move the currency back to it’s pre-managed float levels (i.e. the peg, which stood at 8.27 against the dollar from the late 90s through 2005), that would be about a 20% devaluation in the yuan (to offset a 25% tariff).

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That’s unlikely.  It would set off a response from more of the trading partner universe (which has been quiet, and happy to let the U.S. do the fighting for them).  Will the Chinese government move it back above 7 (maybe mid 7s) yuan to the dollar? Likely.

And with that dynamic at work, and an outlook of a worsening economy, the Chinese people will use any means possible to get money out of China.

Remember, China forbids it’s citizens to move more than $50,000 out of the country per year.  The rich have gotten around that in the past through buying expensive foreign real estate, creative foreign investments, invoice schemes, even forcing employees to transfer money for them to foreign bank accounts.  But in 2017, China cracked down on the capital flow exodus.  And as we discussed last week, the Chinese then discovered Bitcoin.  The value skyrocketed from $1k to over $19k.  China cryptocurrency exchanges were said to account for 90% of global bitcoin trading.

But in late 2017, the Chinese government cracked down on Bitcoin — banning cryptocurrency exhanges. That set off the crash, from $19k to $3k.

Owning and buying Bitcoin in China is not banned – though it is more difficult now.  But we may now be seeing the effect of the Bitcoin futures market and off-exchange (peer-to-peer) trading as liquidity sources for Chinese citizens to respond to potential devaluation in the yuan.  Bitcoin is on the move, big-time — up 25% since Friday afternoon!

Here’s a look at that chart today …

What about stocks?  Stocks have now fallen over 5% from the highs.  That’s leaves the S&P 500 still up 13% year-to-date.  The Dow is up 9%.  Importantly, today we ran into a big technical level on the Dow– the 200-day moving average.  That level marks a 5.5% decline from the highs of the year in the Dow.  This is a level to buy, not sell. 
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