To very little fanfare, the Chinese stock market — the first index to turn around in late 2008 — has slipped into a bear market. It is down 15 % from the nearby high and 20% from last year’s interim peak. Why this is important is because the Shanghai index leads the CRB commodity spot price index by four months with a 72% correlation (and over an 80% correlation with the oil price). Don’t get us wrong — we are long-term secular commodity bulls; however, we have been agnostic this year from a tactical standpoint — never hurts to take profits after a double!

CHART 1: TIME TO TAKE PROFITS — CHINESE STOCK MARKET LEADS THE CRB INDEX BY FOUR MONTHS

1001502002503003504004505005506000607080910280300320340360380400420440460480China: Shanghai Index(advanced by four months: lhs)CRB Commodity Spot Price Index(rhs)R = 72%

Source: Haver