Guillotine and Sandpaper - Chinese stock market
An interesting look at the current stock market crash happening in China.
From
Russel Winter:
Chinese Guillotine
The crash of China’s stock market is now pretty much along the lines seen in the 1929-1932 US crash, the Japanese 1989-1992 crash and the NASDAQ bust. Last night it fell another 5.2% to 2,470. I recall the hook last year on this one: “the Chinese authorities would hold it all together until after the Olympics”. Talk about a misplaced bet on the Wizard of Oz.
If China’s market is compared to the Japanese bust, it is amazing how overlapping these mania-bust markets are. We see the guillotine phase lasted about two years in Japan and initially removed 60% of the price at the peak. It then chopped in sloppy sideways action for a half decade, before making a final bottom over a decade after the peak, and removing about 75% from top to bottom. So far the Shanghai market has been shaved 60%, suggesting that the guillotine phase is fait accompli, with the long sandpapering phase around the corner. You should notice that shorting this might not be a low risk option now, as sandpaper markets tend to experience impressive trading rallies or pops. Next we get the fallout effects elsewhere from the Chinese guillotine. It will be absolutely essential to plug in the negative effect from China going forward.
Russ then offers a chart of Shanghai market and compares it with Japan, NASDAQ and the housing bubble. Very similar curves...
His comments are great to read as well.
Posted by DaveH at August 12, 2008 9:48 PM
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