Signs of The Times
Stock Markets
As Robert Louis Stevenson observed, "Sooner or later everyone sits down
to a banquet of consequences". The plunge in Shanghai can be described
as the first course, or as the Brits say "the first remove". And what a
remove it has been!
In order to complete the full bull move to concluding mania, the SSEC needed
to register three clusters of Upside Exhaustions. That was using 2007 as a
guide.
These occurred on the explosive launch in December, then in April and then
in late May. The last one was one such signal, not a cluster but it was enough
to fit the ending pattern.
The nature of the zoom suggests upside requirements were well met. The 30
percent plunge strongly suggests that the China Bubble is over. As noted last
week, the initial crack in the Nikkei in early 1990 was also accompanied by
officials making bullish comments about lowering margin requirements.
Also noted last week was that the huge effort by China's policymakers is a
magnificent failure of intrusive central banking. One side of it was in boosting
until it became compulsive speculation and the other is in suddenly trying
to thwart the fallout.
Just as the UK government did with the South Sea Bubble. Of course on that
one everyone of importance was bribed and when too many new issues were diverting
funds from going into the quasi-government company the House of Commons passed
the Bubble Act. This was to prevent new stock issues from being floated. China
suspended some 1200 listed stocks.
The 1720 Crash as with others since was a "world-changer".
On the initial break, the ChartWorks had the 200-Day exponential moving average
as a target to pop the rebound. At a somewhat lower level, the 200-Day simple
moving average ended the plunge.
The rebound target is between 4180 and 4450, perhaps accomplished in late
July.
This near-term technical work fits with the historical pattern of peaking
in May-June, churning around in the summer and expiring in the fall. This "model" was
for current blow-offs in exchanges outside of the financial capital. Since
the US market became big enough to be noticed it set final highs in a bubble-year
in September. That's in 1929 and in 1873.
This has been the "model" for NY to make the final rally into September. This
is enhanced by the tendency of the Biotechs to enjoy seasonal rallies from
last week into September. The IBB is making new highs this week.
Other positives have been from our "Friends of the bull market". Margin debt,
A/Ds and the Shanghai peak have been suggesting a NYSE peak some months from
June.
The Shanghai slump pulled a number of exchanges and commodities down and relief
is underway. It could run through August.
