Home > Stocks
China Syndrome: Stock Market Meltdown
The what: On Tuesday, June 10, China’s Shanghai Composite Index suffered a near-meltdown, plunging 8% to its lowest level in over a year.
The why: According to the mainstream experts -- “China’s shares slump after the People’s Bank raises reserve requirements…by a bigger-than-expected full percentage point.” (Bloomberg)
I don’t think so. Saying that China’s stocks are falling on “policy tightening” is like saying the Big Bang gave you a headache. Meaning: The effort on the part of China’s government to stem their nation’s speculative tide is way older than the market’s actual downtrend. To wit:
December 2006: China’s Banking Regulatory Commission urges lenders to call in all out-standing loans, discourage the creation of new mutual funds, and deter foreign inflows. --- June 2006 to October 2007: China’s Central Bank raises the reserve ratio EIGHT times to 13%, all the while increasing interest rates FIVE times. --- January 2007: China’s Security Regulatory Council reveals that “70% of the companies listed on the Shanghai stock index are ‘not good by western standards’ and will probably lose money.” --- May 2007: China’s Finance Ministry triples the ‘stamp tax’ on stock trades.
Yet -- the Shanghai Composite averted every effort to put its Bull in a monetary vise-grip, soaring 500% (from June 2005 to October 2007) to an all-time record high.
Bottom line: In a genuine bull market, no crisis can avert rising prices until social mood itself begins to turn down. For China’s stock market, that moment occurred on October 16, 2007, when the Shanghai Composite took step one DOWN of jaw-dropping sell-off that has slashed nearly 50% off its value so far.
(In the weeks leading up to the market’s peak, the
September 2007 Elliott Wave Financial Forecast introduced a special segment on the red-hot fever for red-chips. In
EWFF’s own words:
“The only bubble that continues to expand is that in the Chinese stock market. The following statistic suggests strongly, however, that its peak cannot be far off.” Now, Tuesday’s
June 10 Short Term Update revisits the market to see when the Shanghai Slump may end.
Learn More)
Along with its in-depth analysis of the Shanghai and Shenzen 300 Index, the June 10 Short Term Update also presents the following price chart.
I have added the details showing where our analysts identified critical turning points. The other difference between my chart and the actual version is this:
Short Term Update’s snapshot reveals a
“textbook Elliott Wave form from the October 2007 peak” -- AND --
“several Fibonacci wave relationships that may offer downside targets.” See the big picture today via a
risk-free subscription.