Monday, February 12th. - Charts, and Commentary China Update Report
Danger ahead for China?
U.S. Investors would be quite happy if the S&P went up 11.5% in a year. What would you think if the S&P suddenly went up 11.5% per week ... every WEEK, for six and a half weeks? A total move of 74.8% in less than two months?
I discussed the Shanghai 180 Index last week with our paid subscribers. From November 13th. of last year to January 29th., it went up 74.8% as Chinese buyers took out mortgages and charge card advances so they could "jump in" on the get rich train. If the same pace were to last one year, the Shanghai would go up 598%.
Let's put this into perspective. At the height of the internet bubble, from November 1999 to March 2000, the NASDAQ 100 went up 86.5%. That was over a 22 week period, and the average rise per week was 3.93%. That was a greed driven bubble that had a precipitous drop. By the following March, the NASDAQ 100 had dropped from a peak of 4918 to 1573 ... or 68%.
That was unquestionably a bubble. Now compare the 3.93% weekly bubble rise we had to the Shanghai 11.5% weekly rise. Three weeks ago, a colleague said that Chinese shoe-shine boys were getting into the market. Who's left to get in? Soon, the shoe-shine boy will lose his shoes, and his shirt. The effect this will have on Chinese consumers, loans in default, and banking problems will not be good.
When the Shanghai tanks, it is unlikely that the world stock markets will keeping trucking along like nothing ever happened. It could very well be the precipitating event that ends this rally. At a rate of increase that would project out to 598% per year, it isn't a question of IF, but WHEN the Shanghai index will have a violent downside correction.
The Shanghai 180 chart is below: (Charts and commentary also continues below.)
Let's look at the long term weekly view of the Shanghai 180 and compare it to our NASDAQ 100 bubble
we had.
The Chinese Shanghai Index looks like our old NASDAQ chart ... the only difference, is the speed at which it is happening on the Shanghai is faster.
In case we forgot what happened to the NASDAQ 100 after our Internet bubble collapse, the NASDAQ 100'S full view to last Friday is posted below ...
China's stock market is no different than ours. There is nothing special about China that exempts them from a fall when greed and exuberance gets out of control.
The only question is when does it happen? In 1929, our market zoomed up, had a pull back and went to a new high before crashing. In 2000, we never made it to a new high ... we just kept going down over time. Which pattern China will follow is unknown, but it is hard to imagine that a market that has been moving up 11.5% per week can sustain this pace for very long.
Please feel free to send this update to a friend, colleague, or family member. I have posted a "Send this to a friend" link below.
You can become a Free StockTiming Member in less than 10 seconds ...
and receive important, free Stock Market email updates every Morning ...
To become a Free Member, simply enter your information and click on the "Free" button.You willreceive Daily Updates and Alert Notices every morning before the market opens. On other occasions, you will also be sent special links to important stock market information and/or studies.
Quick and Easy StockTiming.com Free Member Sign Up
