Is the Chinese property bubble bursting?
One of the biggest dangers to the ‘always up’ markets has been the ultimate Ponzi scheme – the China property market. Values has soared way beyond what most rational observers could imagine. And of course this is one of the features of a mania. Advances feed on themselves with no rational basis.
A mania is where people lose their heads – the shorts lose theirs on the way up and the bulls on the way down!
A recent example is Tesla where hedge fund shorts have been crushed – until recently. The big question always is not if, but when will the bubbles pop?
But news of an impending massive property bust of China’s second largest developer: On Friday, trading in onshore bonds of China Evergrande, China’s second largest and the world’s most indebted property developer, was halted after reports it was seeking government help to stave off a cash crunch caused the price of its shares and debt to tumble, and sparking a crisis of confidence among creditors who’ve lent the world’s most indebted developer more than $120 billion.
So we have the prospect of China not only being the origin of the pandemic, but also starting a tsunami of debt default around the globe. Already corporate debt in the USA is in trouble and even the highly speculative High Yield (aka Junk) is coming off the boil.
And this is highly deflationary – and fits into my long-held picture of a deflationary depression around the corner.
China as the source of major global trends makes sense. A generation ago, most citizens were peasants working the land (and reading Maos’s Little Red Book). Now, they are all middle class owning massive property portfolios. All of this in such a short time period. Have they grown bigger than their boots?
I have already identified the ATH in the Dow just above the 29,000 area in early September (VIP Traders Club members are short in this region), and the China stock market is showing a similar tendency.
Here is the China A50 the index of the leading 50 larges shares in Shanghai – and it is showing some remarkable features
The most prominent is the huge 5-year triangle/wedge pattern in five large waves. The upper wedge line sports accurate touch points and was broken to the upside in July where it made its ATH. Since then, it has been consolidating and currently is testing the upper wedge line.
Thus the July-Sept period may have formed an overshoot, provided the market can drop hard below the 15,000 area.
And if that occurs, I expect a rapid decline to the lower wedge line around the 12,000 region for a tidy 20% decline (or gain for shorts!).
One word of caution – the China stock market is heavily manipulated by the authorities who can out-Fed the Fed by pumping liquidity and hot air into the markets.
But if the tsunami of debt defaults is imminent, no amount of ‘support’ will stem the tide of selling from bulls who just want out. Another point – short selling is banned in China under severe penalties.
Natural Gas is a big winner for us
This is a very large market and the chart patterns are usually well-defined. It certainly is in this period!
The decline off the November 2018 high is in a clear five waves to the wave 5 low in March on a strong momentum divergence. That is when I started looking for a strong rally phase. Since then it has advanced strongly and VIP Traders Club members have been riding the bull here.
My latest entry was last week just prior to a huge surge up the Fib 38% resistance. That is why I am calling this the Moment of Truth. It will either surge past this resistance or be turned down from it.
I shall be looking to take more profit shortly, most probably.
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