A China Turnaround Would Ease a Lot of Pain

Why isn't anyone noticing the bottom in the Shanghai market, given how important it is? This thing's down 50% year over year, and I believe it is bottoming. I am even including the reversal last night that took away about 40% of the recent gain -- exactly what to expect after a massive 7% rally. We know from the dramatic collapse in Baltic dry rates, from the huge reversals in commodities, and from the worldwide slowdown that China's market correctly foretold all of these declines. Maybe it is now foretelling some strength, which is what we need to counteract pervasive fears of a worldwide recession?

If it is bottoming, and at the same time the Olympics are almost through, will China have a recovery? Will it come back to the commodities markets that it has vanished from for several months? Isn't that the most important issue given the incredible bear market in commodities and the world's need for a strong China to sell into? Isn't that what BHP (BHP - commentary - Cramer's Take) and Freeport (FCX - commentary - Cramer's Take) are saying with these rallies (although the latter should have been taken over by now!)?

I think that we are on the verge of a bottom in China, and while I don't expect a U-turn, I do suspect that the metals that have been in free fall could stabilize here and oil will find its footing at these prices for some time.

I do not expect China to reverse dramatically given the weakness in the rest of the world's economies -- I am simply anticipating a stabilization -- but this could be great news for many of the American companies that have been relying on strong Asian sales, particularly the tech companies, which, not coincidentally, bottomed roughly at the same time as Shanghai.

It would be a godsend to the infrastructure companies, many of which have been cut in half. And it would stabilize the free fall in the Peabodys (BTU - commentary - Cramer's Take) and the Arch Coals (ACI - commentary - Cramer's Take) -- again, something that seems to be reflected in the charts. Those stocks have been killed, and it isn't just because of oil. It is about Chinese demand.

A stronger China could also be a counterweight to the endless bank horror stories, as the Chinese still have a lot of money to place here and can be a source of capital that has been absent for most of the year. They have money to put here; things are so bad, we would let them.

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