A Scary Moment in Shanghai
In a brief update on stock markets around the world, the AP informs us:
“Chinese stocks plunged 7 percent Friday as fears spread that a yearlong bull rally there had gotten overheated. The market is still up more than 100 percent over the past year.”
Overheated is the understatement of the still fairly young century in this case. Millions of retail traders have opened new stock trading accounts in recent months, most of whom reportedly know between nothing and less than nothing about the stock market. Two thirds of the new traders entering the market apprently didn’t even finish high school (see chart further below). Margin debt has soared into the stratosphere along with the number of trading accounts and stock prices.
Chinese grannies day-trading during lunch
Photo credit: Reuters
However, it appears as if the market may really be in trouble now:
The Shanghai Composite Index, daily – this is beginning to look serious – click to enlarge.
The chart pattern above actually looks like the beginning stages of a crash. The decisive level is probably the early May low. This may provide support in the short term, but if/when it breaks, a wave of panic selling is likely to develop very