Want to Know Where Stocks Are Going? Watch China ETFs

Once again, the Dow is hitting new highs. I guess that means Jim Cramer’s prognostication that we had seen the highs for the year missed the mark.

You may recall, the CNBC eccentric declared his view that an official 7% decline had just started on 10/28/09. The disingenuous part was… major benchmark ETFs like the the PowerShares Nasdaq 100 (QQQQ), the S&P 500 SPDR Trust (SPY) and Vanguard Total Stock Market (VTI) were already down more than 5% from a 10/19/09 peak.

To be fair, Jim Cramer was far from the only individual claiming that the Dow had likely seen the highs for 2009. The list of naysayers is too long to list in a single post.

Of course, predictions are very much like opinions… everyone’s got one. Rather than predict market direction, however, it’s more critical to understand/discuss/”predict” the most important stock market benchmark.

My opinion is this: If you’re looking at the Dow or the S&P 500 or Vanguard Total Market (VTI) to understand the direction of stock assets, you’re looking in the wrong spot. (Review my post on November 2, “Emerging Markets Will Lead The Way Out of A Correction.”)

More specifically, the Dow 30 Industrials will always have a special place in the heart of Americans as well as market watchers. However, the China 25 Index (FXI) is far more essential to the understanding of today’s stock asset uptrends and downtrends.

Consider the 1-year chart of FXI below. Not only did China (FXI) hit a new high on Monday, 11/09/09, but it has consistently bounced off “higher lows” throughout this stock asset bull. (Note: Technicians/Chartists in the asset analysis biz love nothing more than seeing a series of “higher lows” in stock uptrends.)

As recently as the end of Q3, you had major researchers questioning China in the emerging market BRIC picture. The extreme level of doubt led me to emphatically state, “China Is STILL The Best BRIC In The Wall.”

Do Chinese stock assets carry high valuations? Yeah… perhaps. Are prices due to correct more substantially? That’s certainly within the realm of possibility.

Nevertheless, when Greenspan coined the term “irrational exuberance” for the tech-driven bull market, it was 1996. High-priced stocks were not “bubbly ridiculous” until the year 2000.

China’s stock market uptrend is the uptrend to watch. It’s China’s investing world… we’re just fortunate enough to live in it.

Full Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. The company may hold positions in the ETFs, mutual funds and/or index funds mentioned above.