Traders have been watching the 2500 level on the Shanghai Composite Index closely for the last week.
And today they got the price action they feared. The index dropped another 4.3% today to close at 2427.
That’s below both the psychologically important 2500 level. (Yes, the market does seem to react to round numbers. Nobody ever said investing was a science or even especially rational.) And below the 2481 level that signaled support on the charts to technicians.
So we’re at one of those moments when selling begets more selling as traders who have watched the charts decide to sell because stocks have dropped below support levels on the charts.
The ostensible reason for today’s sell off is a revision to the April report by The Conference Board Leading Economic Index showing that its leading economic indicator, which had shown a 1.7% increase in April when it was reported on June 15, should actually have indicated only a 0.3% increase. The problem was a calculation error involving the total floor space in new construction in the month.
So, yes, a leading indicator of growth based on April numbers is lower than previously reported.
Only a very, very nervous market reacts with a 4.3% drop to news like that.
The market also reacted badly to news yesterday that the IPO (initial public offering) of the Agricultural Bank of China had priced for less than expected in Shanghai. I’ve been following this offering as an indicator of the direction of China’s stocks for months. The fear is that China’s banks won’t be able to raise all the capital they need—some $40 to $50 billion plus the $20 to $30 billion of the Agricultural Bank’s IPO. And weak pricing for the Shanghai section of the Shanghai/Hong Kong deal feeds right into that fear. (For more on this indicator see my post https://jubakpicks.com/2010/06/28/my-buy-indicator-for-chinas-stocks-takes-another-step-forward/ )
There’s probably more damage ahead too. Selling accelerated once the index broke below 2500. Â
The next level of support for the index is near 2000. And I think this market is nervous enough to push lower toward that level. The Shanghai Composite is now down 26% for 2010 and 30.2% from its August 2009 high. A drop to 2000 would be a decline of another 17.5%.
You can, though, also see the potential recovery in this index building strength. A 30% decline is starting to seem very tempting to investors who believe in China’s long term potential and who have been waiting for any entry point. (I’d put myself in that number.) Nobody wants to jump in quite yet and take a chance on another 17.5% drop but at some point the urge to buy a bargain will exceed the sense of a risk.
Not yet perhaps. But soon.
Full disclosure: I don’t own shares of any company mentioned in this post.
Is the idea that us taxpayers should subsidize indian powerplant in the hopes that it will buy our coal to fire it? Who owns the powerplant and why do they need my taxdollars as a subsidy?
Off subject I read an article about how US export-Import Bank denied loan guarantees for a coal fired power plant in India,that by the way met all CO2 standards imposed by the White House, cost Bucyrus a $600 million dollar deal to sell mining equipment and about 1000 jobs.
The Sierra club among others cheered the decision.
I am interested if there is any people on this site who are enviromentalist to answer a question that I can’t figure out.
Sierra club, enviromentalist are against burning coal, doesn’t like mining ect…
They promote green energy, solar and wind.
Ok fine they want to build more wind turbines for clean energy but you need 100 tonnes of high coking coal is required to produce a typical turbine. You need 185 tonnes of steel for that turbine. Not to mention 3 tonnes of cooper. My question to them is how do they produce all these turbines but at the same time work against mining the materials needed to produce them? I have never seen that answer to that.
Many analyst are of the view that S&P below 1,040 level will end up in un-known territory. Whats next ??
Things that make you go hmmmm….
“China Sinking Like Greece Signals 65% Rally to Morgan Stanley ”
http://noir.bloomberg.com/apps/news?pid=20601087&sid=aTiieb8v6AVE&pos=2
Ed,
I was incorrect, when I said earlier that it appeared Google was going to give into China’s censorship demands to re-enter thier market. Google is just trying to make small changes to their in order to keep their business license in China. The license is required for the company to continue providing its mapping and music services in China.
So many years, he has to be right sometime stastically…
My god, DOW is 9800’s. (I just looked now) Few weeks ago, Cramer said we don’t deserve to be above 9700.
I used to hate Cramer and don’t watch his show. His radio ad is unbareble. But his recent written pieces seems on target.
All the news stink; it is all the more interesting to note that, instead of suggesting the side lines, you point to buying China. I noticed by the way that the Shanghai composite went down to 1700 end of Oct 2008.
I was buying today.
Off Topic… VZ to sell iPhone in January
http://www.bloomberg.com/news/2010-06-29/verizon-wireless-said-to-start-offering-iphone-ending-at-t-s-exclusivity.html
creativekev, unfortunately it’s going to be really hard to read the action this week with the long weekend in the U.S. Chinese stocks trade very much on momentum on the Shanghai market anyway since nobody really trusts the “fundamental” data. So we need an event to turn it around like the Ag Bank IPO–big first day bounce would do it–or some signal on policy from bank regulators in Beijing. Of course, at some point, even sabsent that overseas investors will buy in ob fundamentals–we believe in the growth story even if we know the specific numbers aren’t very reliable.
Jim – Thanks for the green light (almost) on buying into China. I might go in with a mutual fund or ETF, but your big-picture analysis (to help catch a bottom) is important and much appreciated.
Wowww…S&P below 1040 now!
I’d like to hear what folks think about XOM now too!
Off topic.
XOM is getting lower and lower. I thought I may have missed buying opportunity at $58, now it’s $57.
I am a long -term bull on oil and gas.