China & The Mother of all Double Tops?

Shanghai was down 6.5% this morning.

The alleged cause was news that Chinese officials were raising the tax on stock transactions from 0.1% to 0.3%. They have been trying to reduce the speculative bubble there, but to no avail. (Stocks in China are limited to 10% daily movement).

The Shanghai Composite hit 4334.92, its highest level ever. YTD, its up 62%, and since mid-2005, the index has gained 328%.

Marketwatch reports that "Outside of China, global markets declined on Wednesday, but not precipitously – the Nikkei 225 closed with a 0.5% loss in Tokyo, and the FTSE 100 declined 1.1% in London." 

What will be interesting today is whether or not it sticks. Here in the US, markets have up until very recently, been clawing back from any negative opening. Its only over the past two weeks that we have seen tired trading, with an inability to sustain a strong open.

The failure of the SPX at the prior highs — 1527 on closing basis — and an inability to make a new high has some technicians wondering if we are looking at the mother of all double tops. (I have no opinion on this).

Whether the straight up market is merely tired, or overdue for some sort of pullback, or if this is the start of something else is unknown for now.

Futures are in the red, with the Dow down 70, the Nasdaq off 10, and the S&P500 off 7.5

Today’s trading will be quite interesting to say the least.

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What's been said:

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  1. jmf commented on May 30

    interesiting to see how the markets in china will follow up tomorrow……

    one point at the day 200 from 300 stocks of the csi 300 were limit down (10%)!

  2. peter from oz commented on May 30

    glad you said ‘alleged’ Barry
    the Basques are nervously watching the Exits
    this is one market that doesn’t reflect the underlying economy
    there’ll be some real bargains in the leading resources after this fallout
    rgds pcm

  3. V L commented on May 30

    The tax increase from 0.1% to 0.3% is hardly an increase at all. It will not cool down the speculation.

    The Dow futures are down by 70 points – classic conditional response. It just shows that the traders are nothing more than Pavlov’s dogs.

  4. Jay Weinstein commented on May 30

    VL is exactly right.

    The great value of this blog to me has been the persistent questioning of government statistics, their poor methodology, and their horrible inaccuracy.

    I cannot for the life of me understand why anyone in his or her right mind would make snap investment decisions on such horrible data.

    Oh forgive me–i forgot I was referring to Wall Street traders! LOL

    Regards to all..

  5. UrbanDigs commented on May 30

    Lets not forget that the Chinese markets are up 62% so far this year and jumped 130% last year. And the markets spiked higher the years before as well.

    Good times never last forever! Obviously, the gov’t feels the need to do something to slow things down or else much bigger problems will end up happening. People are so biased to the bullish side that they forget that bad times do occur.

    Let me ask you this? What happens if this correction doesn’t snap right back? What if other Asian markets follow suit? What if US hedge funds that have been invested in these markets decide to pull out? Effect on US equities?

    We already had one Asian contagion back in 1997-1998, why is it NOT possible for another?

    I’ve been discussing this on weeks ago; that is a Chines equity market correction and its effects here at home:

    What happens if Chines markets give up HALF of what it gained this year and last year alone, forgetting the years prior?

    Everyone is so scared to predict a top, yet when you are at these record levels it seems logical to me to lighten the load and get more cautious. You never know what might happen to spook investors and today’s news in China is a great example. Fundamentals or not, things change and you must adapt.

    Back in 2000, fundamentally things were great. Only problem is, the reports I was analyzing on corporations operating income and such, were false! Guess what, its the average investor that gets hit the most by not adapting to a mysteriously changing marketplace.

    Warning signs, thats all Im sayin!

  6. S commented on May 30

    The Yen is not rallying like it did during the February Chinese market whackage. That could be the green light for the dip buyers.

  7. EricP commented on May 30

    I love the fact that every strategist on the TV is calling this a buying opportunity. I’ll still wait until Mr. Valentine sets the price.

  8. V L commented on May 30

    ADP is 97K (mostly service-producing jobs) suggesting that the employment numbers should be around 120K (adjusting for government jobs).

  9. Fred commented on May 30

    I wouldn’t be surprised by a whipsaw higher, then a “whack a mole” lower…buy the second dip.

  10. V L commented on May 30

    In addition, the tax was 0.6% in the 1990s but has been cut repeatedly since to 0.1% in 2005.

    The tax of 0.3% is half of what it used to be in the 1990s.

    The media spins it as “the tax was tripled” vs. “the tax was increase by 0.2%”. Why?

  11. mhm commented on May 30

    They say tripled ’cause if they say “increased by 200%” nobody will believe the story.

    The MSM circus has a good show today. Just make sure who the clowns are before you laugh.

  12. Fenner commented on May 30

    my guess of today’s action: 3/4 gap close this morning, weakness late morning, after 11, down around 60, serious selling starts at 12:50, down 145 by 3 p.m., rally back to 100 and then sell off in last 15 minutes and close down 131 points. Just a guess.

  13. alexd commented on May 30

    A long time ago I was a newlywed driving with my wife. We were driving along a northern part of route 80 in Michigan. Cruising along at about 55 miles per hour. Suddenly a snow squall a bit of the lake effect occoured around Benton Harbor. The rear of the car started to swerve back and forth in ever increasing moves with greater and greater speed. I yelled “hold on!” Then we broke out of the last swing and spun off through a reflector to settle at the side of the road. No harm to either of us although the car needed some repair at the point where we snapped off the reflector.

    So we were delayed a day and then got on with our journey. I drive a bit more cautiously in situations where it looks like the weather might change.

  14. V L commented on May 30

    What about the tax was increased by the additional 0.2% instead of “it is tripled” or instead of “it is a 200% increase”?

    After the Fed increased the interest rates from 1% to 5.25%, I did not hear anybody saying that the rates had a 425% increase over a few years or something like “pentaploid increase ( 5x)”.

  15. ManhattanGuy commented on May 30

    I see markets recovering as I was reading this post. Oh you poor bears, you hope for a market crash and it doesn’t seem to happen. I pity your predictions!

    This summer will be interesting.

  16. fenner commented on May 30

    3/4 gap close complete…

  17. John commented on May 30


    You do realize, of course, that your sniggering end-zone dancing is music to the bears’ ears…

  18. spongetoddsquarepants commented on May 30

    who got out of US equities in 2000 and invested in AZ,FL and NV condos,then dumped the condos in 2005 and got long chinese equities?. this is the guy I want to manage my money.

  19. 123 commented on May 30


    if you find the guy that did that good luck getting him to manage your money. If he is doing very well for his self why would he need to manage other people money?

    Every one knows people who manage other people money don’t have their own money. rotf

  20. michael schumacher commented on May 30

    Manhattan guy will just post a portion of some article that highlights his stance. He did it with the NAHB numbers last week. Forgetting to mention that the increase was only in one area (N.W.)while the rest of the country was still in a long down trend.

    Funny how people only hear what they want to hear……just like the king.


  21. jopo commented on May 30

    this may be of interest……

    Did You Know? (6 Stamp Duty Adjustments in History)

    From a local onshore broker

    *Oct. 1991 – The Stamp Duty was cut from 0.6% to 0.3% – SHCOMP gained 20.7% in the following month; *May. 1997 – The Stamp Duty was raised from 0.3% to 0.5% – SHCOMP lost over 30% in the following month; *Jun. 1998 – The Stamp Duty was cut from 0.5% to 0.4% – SHCOMP gained 2.65% on the day of the announcement; *Jun. 1999 – The Stamp Duty on B-share was cut from 0.4% to 0.3% – SHSE B Index gained over 50% in the following month; *Nov. 2001 – The Stamp Duty was cut to 0.2% for the whole market – SHCOMP gained over 100 pts in the following month; *Jan. 2005 – The Stamp Duty was cut from 0.2% to 0.1% – SHCOMP gained 4.1% in the following month.

  22. peter from oz commented on May 30

    the average stock in the SPX trades at 23.5x earnings and 4.5x book value,the yield on the 10-year benchmark T’note is trying to travel above 4.9%

    rgds pcm

  23. ManhattanGuy commented on May 30

    Dow up 111 points, NASD, S&P Record close

    How about that ehh?

    Still targeting for a Dow 14000


    BR: Yes

  24. ManhattanGuy commented on May 30

    BR – I don’t believe we will have a double top here on S&P. I thought the same thing about Dow Jones when it was approaching 13,000. But it blew my expectations. I think S&P is going to break 1550 by year end.

  25. gsvirdi commented on May 31

    Hope yesterday was fine day for traders there in China. How was the day by the way?

    I’m looking into a website of Forex Trading, it says “Start Trading with as little as $1”.


  26. Michael (traderMike) commented on May 31

    It was a big day for the bulls today. They shook off the little pre-market China scare and proceeded to push the indices to new all-time and multi-year closing highs. Volume rose back to respectable levels although trading was still lighter than last Thursday’s big down day. But that less than desirable volume action is about the only thing the bears can hang their hopes on in this market.

  27. Fred commented on May 31

    I think Cooper says it well at Minyanville:

    “A day that all traders will remember because against all odds and expectations, on the heels of a Shanghai slam-dunk – down six percent overnight – the S&P scored a new record closing high. It was a day where the music of money and the chorus of momentum defied any illusion of clarity in the market. It represents a metamorphosis of value. It represents a transmutation of the concept of true and false, where true and false are forced to change places.”

    “Wednesday was a day where the market shouted at participants in its best Jack impersonation, “You want clarity? You can’t handle clarity.” In short it was a day where all traders have to question what really matters.”

  28. Home Owner Insurance Arizona commented on Jun 27

    Hasn’t China had a dozen years of 10% growth. A little market correction is normal, right? Or not. I know they’ve plugged a ton of money into their military, especially the Naval force.

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