Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Bitcoin Price 2019 Trend Current State - 18th Sep 19
No More Realtors… These Start-ups Will Buy Your House in Less than 20 Days - 18th Sep 19
Gold Bugs And Manipulation Theorists Unite – Another “Manipulation” Indictment - 18th Sep 19
Central Bankers' Desperate Grab for Power - 18th Sep 19
Oil Shock! Will War Drums, Inflation Fears Ignite Gold and Silver Markets? - 18th Sep 19
Importance Of Internal Rate Of Return For A Business - 18th Sep 19
Gold Bull Market Ultimate Upside Target - 17th Sep 19
Gold Spikes on the Saudi Oil Attacks: Can It Last? - 17th Sep 19
Stock Market VIX To Begin A New Uptrend and What it Means - 17th Sep 19
Philippines, China and US: Joint Exploration Vs Rearmament and Nuclear Weapons - 17th Sep 19
What Are The Real Upside Targets For Crude Oil Price Post Drone Attack? - 17th Sep 19
Curse of Technology Weapons - 17th Sep 19
Media Hypes Recession Whilst Trump Proposes a Tax on Savings - 17th Sep 19
Understanding Ways To Stretch Your Investments Further - 17th Sep 19
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

How and Why the Chinese Shanghai Stock Market Index could implode ...

Stock-Markets / Chinese Stock Market Apr 27, 2007 - 08:21 PM GMT

By: Marty_Chenard

Stock-Markets

This week, the Shanghai Composite Index has maintained its bubble trajectory angle, and if the angle continues to hold, the Shanghai will hits its 12 year major resistance in the latter half of next month. Why is the Shanghai continuing to move up at such an incredible pace?

Because of supply and demand of investors.


From the supply side, over 10,000,000 Chinese citizens opened new stock trading accounts during the past 4 months. 
Last week ... over 1,000,000 opened new stock trading accounts. 

No matter how you calculate it, that has been an average of 1 million new investors per week for
13 straight weeks in China.

This week, I had a discussion with a Hedge Fund manager about it.  I asked, "How long do you think
the Chinese market can go up by adding 1 million investors per week?"

His answer was, "Practically forever ... because they have over 1.3 BILLION people".

Logic versus REALITY ...

Logically, it seems to make sense.  They have 1.3 billion people.  At 1,000,000 per week, it would
take 25 years for every Chinese person to have a stock trading account.

But, a statistical analysis shows a DIFFERENT reality for this reason ...

An implosion has nothing to do with how many people live in China.  An implosion has everything
to do with the Week-over-Week average number of NEW investors moving into the market ... and
right now, the average has been 1 million per week for 13 weeks.  They can't seem to move above
that average, and part of is has to do with how many Chinese can continue to mortgage homes
and draw cash our from credit card accounts.

The reality is, that if a universe adds 1,000,000 to its base every week, then the growth rate of
the base continues to diminish at a rapid pace. 

Consider this:  In the first week, 1 million open a trading account.  The second week, another million
open a trading account.  What was the increase in the size of the new trader pool in week 2? 
The answer: 100%

Now let's go to week number 6.  At this point, there has been a total of 5 million new traders added
to the pool (at a rate of 1 million per week.)  Now, at week six, another million are added.
What was the increase in the size of the new trader pool in week 6? 
The answer: 20%  (1 million new divided by 5 million existing accounts.)

This is now the 14th. week since the new trading accounts have been reported. So, if another
million are added this week, then this week would have only increased the pool size by 7.14%,
a far cry from the 100% added in week 2.

Below is a chart to show you how the percentage of the investor pool size decreases even
though 1 million is added every week.



If you look at the chart, you see how the first 5 weeks astronomically increases the size of the pool with a fast growth rate.

The red bar on the chart is week number 20.  At week 20, another 1 million only adds 5% to the size of the pool.

The point is this ...

Every time someone in China gets a second mortgage, and draws his charge card credit down for cash to use in the
stock market, he has tapped the Big Portion of his assets/credit.  The only way to get new money for the stock market
after that is from the left over discretionary income from his monthly wages ... not much in comparison to his initial amount.

So, in this Ponzi scheme of things, the 13,000,000 that had trading accounts relied on the new 1,000,000 to buy
their stocks and drive the price up higher so that they could make their expected get rich profits.

Here is the big question:  At what point does the pool get too large, where another new 1 million investors is now
too small an amount to keep the overly large base of investor holdings from moving up?

At week 52 on the chart, the new 1 million addition of investors only increases the total investor base by 1.92%.
In week thirty three, 3.03% of new investors are added to the base.

Here is the next big question:   What happens, if in week thirty three, 6% of all the investors decide to take profits?

Let's start the answer with what would have happened in week 2 when 100% new investors were added.
100% buy and 6% sell.  Assuming the average investor amounts are the same, then the market would
have still had 94% new money inflows.

Now, lets go to week thirty three.  What happens when 3% buy and 6% sell?  The selling outpaces the
buying by 2 to 1 and the market goes down.

The point is, that as time goes on, the leverage shifts from a bullish low-risk condition, to a high-risk bearish condition.
When we get too far out on the curve of the chart I posted above, there will be a point where people can't bail
out of the market without it imploding to the downside.

By Marty Chenard
http://www.stocktiming.com/

Please Note: We do not issue Buy or Sell timing recommendations on these Free daily update pages . I hope you understand, that in fairness, our Buy/Sell recommendations and advanced market Models are only available to our paid subscribers on a password required basis. Membership information

Marty Chenard is the Author and Teacher of two Seminar Courses on "Advanced Technical Analysis Investing", Mr. Chenard has been investing for over 30 years. In 2001 when the NASDAQ dropped 24.5%, his personal investment performance for the year was a gain of 57.428%. He is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools.  As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL.  He is an advanced technical analyst and not an investment advisor, nor a securities broker.


© 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