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Important China Warning Update: What is China's Zhou Xiaochuan going to do now? Zhou Xiaochuan is the governor of the People’s Bank of China. Like us, he knows that the Chinese stock markets are in a bubble and he is very worried about a precipitous decline. His power on making such comments, comes from the fact, that in the past, Chinese investors always took the Government's work as "Gospel". In the past, all he had to do was "issue a public warning" and investors would listen to him. Now, Chinese investors are ignoring him. He even tried sending out a wake up call by having 3 major, State run newspapers run headline stories decreeing his warning on Tuesday. Instead of the market pulling back, it jumped up 3% in one day. That now leaves him only one option. If they won't listen to what he says, he will have to initiate some kind of banking/government action that will force Chinese investors to slow down. The Worse timing in the world? If Zhou just waits until next week, the Shanghai will hit its Major 12 year resistance and should pull back on its own. About the worse thing he can do, is to initiate action to force the Shanghai down right when it is ready to go down on its own. That "double whammy" could have some very nasty, unexpected results for Zhou.
He is stuck. If he doesn't do anything and the Shanghai goes into a "blow off" beyond the 12 year resistance, then he is in big trouble and will be blamed for not stopping it.
If he initiates actions that forces the market down, just as it is ready to retract on its own, that could give it a damaging nasty fall beyond what would have happened. If that happens, he have to take the blame for a damaging correction. His best course of action is to just wait until next week and let the Shanghai hit its 12 year resistance. The time for him to have done something was months ago. This morning's Shanghai update ...
Action on the Shanghai has been straight up this week. Two weeks ago, it was 13% away from it 12 year target, and this morning, it is only 3.7% away. If it continues at this pace, it will reach the Major Resistance before next Wednesday morning.
Like all bubbles that have gone straight up in parabolic fashion, their retreat is a reverse, sharp move to the downside. Take a moment to look at the chart below from the last Fall until now. Its a picture of a bubble, that is about as big as you will ever see in your lifetime.
The danger in all this, is a spill over into the worldwide markets. In February, a large Chinese pullback had our market drop. In a short period of days, we rebounded and so did the Shanghai. This time, some "Expert Analyst" on the Chinese situation are saying that, "The link between the Chinese economy and the Chinese stock market is not that strong ... and therefore will have minimal impact".
Minimal impact on what? They are suggesting that a Shanghai correction will have minimal "long term" impact on the Chinese economy. That's is very probable and possible. However, in the mean time, and in the short term, a sizeable drop would cause a panic. People react irrationally in a panic, and fear breads fear until things stabilize and confidence comes back. I really don't think it is possible to have an "isolated" panic reaction by Chinese investors that does not, somehow, spill over into the rest of the investing world. If we were not so inextricably tied together as trading countries, I would agree that it wouldn't affect our markets. If it was a country like the Dominican Republic, the world would hardly take notice. How long have we been pointing out an upcoming Shanghai drop? We started our first Alert in early February, and have kept you updated every week since then ... and now ...
Goldman Sachs issued a China Warning this morning ...
Now it is May 10th., and this morning, Goldman Sachs Group just announced that, "China's stocks may face a "correction'' as valuations have exceeded earnings prospects after the benchmark index almost tripled in the past year." They went on to say ... The Shanghai is valued at 42 times reported earnings, more than double the Morgan Stanley Capital International Asia Pacific Index's 19 times. China's investors opened over 350,000 new brokerage accounts on Tuesday. (This was the same day that Zhou published his warning in the 3 Major Newspapers). This was the highest daily amount of new accounts opened since June 2005. 
Click HERE to go back to the main Shanghai Stock Market Overview page
Note: The Following Update was our Shanghai Update from April 23, 2008. For the most current Shanghai Stock Market Charts and Analyses, Click on the Day of the Week below: _________________________________________________________________________________
April 23, 2008:
Somewhere between May 2nd. and June 14th, the Shanghai is going to do something very unusual in the realm of stock market indexes.
The Shanghai Composite Index has catapulted up in a parabolic trajectory that took it from 1180.96 in January of 2006 to 3710.88 this morning. That hefty 214.23% rise resulted in a hyper-parabolic rise that has the index going straight up ... and many think that there is no end in sight.
No end in sight? But, there is ... a very long, 12 year major resistance point will be reached, somewhere in between an index level of 4189 to 4231 between now and June 14th. if the Shanghai Composite just remains on its current trajectory since March 19th. of this year. Our internet bubble trajectory is being dwarfed by the speed and rise of the Shanghai Index.
The odds of a sharp reversal back down at that point is extremely high, because parabolic movements like this become exponentially more difficult as the trajectory's angle increases.
It would be a lot better for all of us, if the Shanghai corrected tomorrow morning, rather than risk a crash that would reverberate through the world indexes. The Chinese are worried that it will be the U.S. markets that take down the markets, but it is more likely that they will be the ones to take the other stock market indexes down. See the next chart ...
As the Shanghai Composite is going parabolic, the Shanghai 180 is showing signs of trouble ahead.
Below is the 2006 to 2007 chart for this index. What is note worthy, is that every time the Shanghai 180 has had a negative divergence with its rate of change, the index corrected. As you can see below, we now have the largest divergence disparity of the past 16 months.
In the first instance the index went up for 19 days, and then, the next 5 days of correction wiped out the entire previous 19 day up move.
In the second instance the index went up for 44 days, and then, the next 19 days of correction wiped out the entire previous 44 day up move.
What happens if this negative divergence behaves in a similar fashion? Our down side projection is at least 2000 points and over 25% to the downside.
While our economy and market may pose some downside risks due to a variety of potential problems, the biggest index related risk on a worldwide basis has to be China's stock market.
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楼主
Dec 28, 2008 10:57am 
Let wave 3 down begin in Euro 
