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China Keeping the U.S. Markets Alive

This morning the major stock market indexes in the United States all opened very poorly. However, since the open we have seen most of these important indexes recover most of the early losses and actually trade around the unchanged level on the trading session. There a few reasons for this type of early recovery in the Dow Jones Industrial Average, S&P 500 Index, and the technology heavy NASDAQ. The first reason is the weaker U.S. Dollar Index, and the second major factor is the strong Shanghai Index(China) last night.

When the U.S. Dollar Index trades lower most stocks and indexes will inflate higher. Leading commodity stocks such as United States Steel Corp (NYSE:X), and Cliffs Natural Resources Inc (NYSE:CLF) are both leading the markets higher today. Whenever the U.S. Dollar Index retreats these names can be played for possible bounces.

The Shanghai Index rallied higher last night by more than 2.0 percent. Whenever the leading Chinese stock index trades sharply higher many commodity stocks will instantly catch a bid higher. Most investors are betting that the continued growth in China will help keep building very strong. Therefore, China will need to keep purchasing commodities and materials. China has continued to post strong GDP numbers over the past year and the market is following their every move.

Who would ever believe that China would be the driving force behind the U.S. stock market? Believe it or not the time has arrived when China is leading the world economically. As we all know China has financed much of the debt of the U.S. government for years now. However, the global stock markets are now depending on this country to carry the global markets higher. Keep an eye on the Shanghai Index going forward. When this index rallies the rest of the markets around the world will usually hold up. When the Shanghai Index declines and corrects the rest of the world indexes usually declines sharply lower.

Nicholas Santiago
Chief Market Strategist