Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

China Stocks - This Is What a Bubble Looks Like

Stock-Markets / China Stocks Jun 30, 2015 - 06:19 PM GMT

By: Investment_U

Stock-Markets

Matthew Carr writes: We just experienced another “Black Friday”...

Not in the U.S. markets, but across the Pacific in China.

You want to talk about overvalued? Overheated? The Chinese stock markets were on a tear earlier this year. The Shanghai Composite was up more than 100% at the start of June... and most of that was accomplished between the end of March and the beginning of June.


But over the past month, everything started to unravel. It all culminated in Friday’s epic collapse.

One Month Performance of Chinese Stocks chart

The Shanghai Composite tumbled 7.4%... the Shenzhen fell 7.9%... and the ChiNext tumbled 8.9%.

Then on Monday, as the situation in Greece came to a boil, Chinese stocks were hit again...

The Shanghai Composite shed another 3.3%. And that was after it wavered between a 7.6% plunge and a gain of 2.5%. It was a chaotic intraday move not seen in more than two decades.

The bull market in China is officially dead.

Analysts want to point at Greece as the cause of the enormous pullback. But that’s not really the case...

The real culprit here is margin selling.

A Debt Bubble for the Ages

An unprecedented amount of money was borrowed by traders and investors during the Chinese stock boom. You see, in bull markets, trading on margin adds to gains. It can turbocharge them, especially in a market that’s doubled in just a few months.

Think about these numbers...

Despite the fact that many Chinese indexes are down 20% or more in the month of June, the Shanghai Composite is still up nearly 100% for the year. The Shenzhen is still up 114%.

iuox.display(71);

So a lot of folks who took on debt were rewarded with huge short-term gains.

Then attitudes about Chinese stocks shifted. Leveraged traders liquidated margin positions for nearly a week straight, adding to the selling pressure.

It was inevitable. Because while margin purchases push stock prices higher, they will eventually create a violent move lower when positions are sold.

The downturn accelerates, picking up speed as losses mount. And, as a result, the Shanghai is now experiencing its longest stretch of declines in over a year.

In fact, the outlook for Chinese markets and stocks is decidedly negative all the way into 2016. Some institutions are calling for an additional 30% decline.

The question is... can it happen here?

Steady as She Goes

First off, the U.S. markets haven’t even come close to the performance of their Chinese counterparts over the past year.

And over the past five years, they’ve been much more in line with that Raconteurs song “Steady as She Goes.”

Shenzhen verses S and P Dow Nasdaq chart

Sure, the broader U.S. markets have more than doubled from their lows in 2009. But they haven’t had any irrational breakouts or done anything too whacky.

On the other end of the spectrum, the Shenzhen underperformed the U.S. markets from 2012 through 2014. And then it skyrocketed, not only leaving the best-performing U.S. index in the dust this year but outperforming the five-year performance of all U.S. markets.

That’s what a bubble forming looks like. And what we’re seeing now? That’s what a bubble bursting looks like.

As for margin debt, this is a fear that’s been brewing in the U.S. markets for quite some time.

My colleague Ryan Fitzwater covered this in Investment U a couple of weeks ago, highlighting the dangers of investor margin debt. (Click here to check that out.)

Record High Margin Debt Signals Potential Market Sell Off chart

What we can see from the chart Ryan created is that when the markets collapse, investors’ tactics change practically overnight.

In bear markets, investors are credit balance positive. They don’t take on debt and largely sit on cash.

But in bull markets, they’re willing to bet the farm until the bubble bursts. As we’re seeing in China, the resulting pullback can be sharp, swift and devastating.

Concerns have been growing here because U.S. margin debt hit a record high in April. It’s now higher than the levels in 2000 and 2007. By a lot. So when the selling starts - and I can’t predict when that will happen - this will play a major role in the downside pressure.

Just as we can’t prevent our neighbors from overleveraging themselves in their mortgage, though, we can’t prevent our fellow investors from doing the same with margin.

What we can do is protect ourselves the best we can, using protective stops and trailing stops. We can enjoy the ride higher while we can... all the while preparing ourselves to attack the lows when they appear.

Good investing,

Matthew

Source: http://www.investmentu.com/article/detail/46265/china-black-friday-what-a-stock-market-bubble-looks-like#.VZL15U3bK0k

http://www.investmentu.com

Copyright © 1999 - 2015 by The Oxford Club, L.L.C All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Investment U, Attn: Member Services , 105 West Monument Street, Baltimore, MD 21201 Email: CustomerService@InvestmentU.com

Disclaimer: Investment U Disclaimer: Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Investment U Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules