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Strategies & Market Trends : China ETF - FXI -- Ignore unavailable to you. Want to Upgrade?

To: Norrin Radd who wrote (97)	6/20/2010 11:28:06 PM
From: Walkingshadow	1 Recommendation Read Replies (1) \| Respond to of 105

China has completed a relief rally after the bubbles in it's markets imploded in late 2007. As with all bubbles, China's will not fully recover for 30 years or more. The Shanghai and Shenzhen composites have developed in textbook perfect fashion. First, they lost about 70% of their value, dropping rapidly from 6,000 in November 2007 until the lows a year later at 1725 or so. Then, they rallied, reaching a peak at 3400. This level represents a point that is 43% below the November 2007 peak at about 6,000. Compare that with the Nikkei, and you will see that the Chinese exchanges have pretty much duplicated the performance of the Nikkei, except that the Nikkei took a very long time to reach its low point. The Chinese markets have NOT reached their post-bubble lows yet. Like all bubble implosions, the Chinese markets must lose at least 80% of the values at the peak, and more typically, 85%. That means the Chinese markets will reach a low of 900 - 1200. I have zero doubt this will occur, but I can't say exactly when. What I can say with a very high probability of being correct is that the Chinese markets are headed down, not up. They could rally to the old highs at 3400 first, however. If so, that would be a shorting opportunity that would be extremely high probability. If they do rally (very doubtful), they will not get any higher than 3400. In fact, they will not get any higher than 3400 for the next 10 years. That's just how bubbles work themselves out. It is amazing how similarly bubble resolve, regardless of what is being traded or where or when. Just examine some of the major historic asset bubbles that have occurred in the past hundred years or so and you will see what I mean. Just to cite three examples: the Chinese markets, the NDX, and the Nikkei all rallied post bubble implosion to the same levels: 42-43% below their peak values. This is the limit that will not be exceeded for at least a quarter century. The Nikkei would have to more than double to again attain this point. The NDX would have to rally about 22% to reach its post-bubble upper limit (2800). And now, the SSEC is at 2500, which is 900 (36%) below its upper limit at 3400. So, the SSEC can rally no more than about 35% from current levels, but it is MUCH more likely that it will never get close to that, and instead will drop more than half its value over the next few years. I know people will disagree, and cite the Chinese GDP growth. However, prior to the bubble, between the middle of June 2001 and the middle of June 2005, China's GDP was growing at double-digit rates, yet the Chinese markets were in a steady downtrend, losing 55% of their value over this 4-year period. Now, one could certainly argue that the GDP growth was largely illusory, but regardless, it is clear that the Chinese markets (like all markets) can move completely contrary to macroeconomic factors for extended periods of time. Personally, I think a short position in the Chinese markets will pay off very well for those with longer-term time horizons (over 1 year). All IMHO, of course WS