Shanghai Stocks Sink: Déjà vu 2001 & 2007…All Over Again

June 20, 2015

Shanghai Stock Index increaseWhat is occurring today in China’s Shanghai Stock Index can best be described by Yogi Berra’s famous line: “Déjà vu 2001 & 2007…All Over Again.”

Almost 85% of China-listed companies are trading at higher multiples today than they did at the previous market top in 2007…just before the crash.

The Shanghai Stock Index began crashing in 2001 and again in 2007…as depicted in the chart below.

http://tinyurl.com/nt8382l

2001-2005 Shanghai Stock Crash

Shanghai Index was relentlessly hammered down 55% during 49 months.

2007-2008 Shanghai Stock Crash

Shanghai Index mercilessly plummeted 72% during only 12 months.

And in June 2015, the Shanghai Index echoes:  Déjà vu 2001 & 2007…All Over Again

The above chart clearly shows Technical Indicators (oscillators) RSI and MACD have again recently maxed out as they did in 2001 and 2007…thus heralding an imminent correction.  Moreover, the Shanghai Composite Stock Index has risen with accentuated irrational exuberance by soaring hyperbolically +150% in a mere 13 months…which is irrational exuberance high on Cocaine!

Not only RSI and MACD oscillators are at maximum high levels, the chart above shows last month’s movement as a Spinning Top (signifying provocative indecision of investors). 

And although the Shanghai Index is forecasting an impending Bear Market, it is not alone.  We also see Asian bears emerging in the Hang Seng Stock Index of Hong Kong, Shenzhen China Stock Index and the Singapore Straits Times Index…likewise all displaying peaking patterns…of nascent Bear Markets…as they all did in 2001 and 2007.

Hang Seng Index of Hong Kong

http://tinyurl.com/ofw9guw

Shenzhen China Stock Index

http://tinyurl.com/osx9guj

Singapore Straits Times Index

http://tinyurl.com/ns2ffoj

PEK Market Vectors China ETF

PEK is considered by several Asian market pundits as the bellwether for China stocks. And although this ETF did NOT exist before 2011, its price has soared 151% during the past 13 months. Moreover, the Technical Indicators of RSI and MACD are grossly maxed out…suggesting a material correction looms on the horizon.  See chart below:

http://tinyurl.com/pt6e7qj

With economic growth materially slowing in China, there is little reason…nor fundamentals for a sustained near vertical rise in Chinese Stock prices during the past 8 months. Indeed, history is testament that nearly vertical levitation in stock prices is always followed by vertical free-fall crashing stock values…as greed virally mutates into fear and panic.

And as Asian Stock Markets succumb to reason and common sense, the Asian Bear influence may well cross the ocean to the Western World. Specifically, US and Euro Union stock prices might easily fall in concert with Shanghai, Shenzhen, Hong Kong and Singapore stock markets.

Forecast For Shanghai Stock Index

Based upon the above analysis and history, it is conceivable the Shanghai Stock Index might decline to the 2000 level support by the end of next year…representing more than a 50% plunge from today’s level.  Likewise, the other Asian Stock Indices will most probably decline in concert with Shanghai stocks.

A parting shot:  One French bank has described the Chinese equity market as “impending doom” which could be good for the gold market in the long-term

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Related Research

China stocks nearly a quarter overvalued: Credit Suisse

Bubble trouble: China's stock market looks too hot

A Pop In Chinese Equity Bubble Could Push Gold Higher

The world’s worst investment bubble will burst soon

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Founder of Gold-Eagle in January 1997.  Vronsky has over 42 years’ experience in the international investment world, having cut his financial teeth in Wall Street as a financial analyst with White Weld. Vronsky speaks three languages with indifference: English, Spanish and Brazilian Portuguese.  His education includes a degree in Petroleum Engineering from the University of Oklahoma, a Liberal Arts degree from Hartnell College and a MBA in International Business Administration from UCLA – qualifying as Phi Beta Kappa and Tau Beta Pi for high scholastic achievements.  Vronsky believes gold and silver will soon be recognized as legal tender in all 50 US states…and many countries worldwide.  You may reach I. M Vronsky at: vronsky@gold-eagle.com and/or vronsky@bellsouth.net

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