Changing market dynamics open up new vistas

The behavior of financial markets is often correlated, which is why Western investors look to the Dow Jones Index for leadership. When the Dow rises, the rest of the world follows. When the Dow falls, traders prepare for falls in their own markets. This strong correlated behavior was clearly seen in 2007 and in the first part of 2008. Then something unusual developed. The basis of international market correlation changed.

In every market, investors try to identify key trend turning points in the trend. The Dow market peak in November 2007 is the key turning point for the American market collapse in 2008. The lows created in March 2009 are the key turning point for the new uptrend rally experienced in the American market and followed in European and Asian markets. For many market analysts, this is the normal situation and they believe the Dow leads and the rest of the world follows.

China market behavior is different. The peak in the Shanghai index was in October 2007 and the market developed a dramatic decline. This market fall continued until November 2008. The market developed a consolidation pattern and then developed a new uptrend. The degree of fall was much greater than the market fall in the United States. This confirmed the different relative volatility between the two markets.