Session of 03/07/2007

[KCScott]

Are You sugesting that atleast some money bought heavily into the pull back?

Quite a bit of Retail money bought into that weak bounce we had last Wednesday. While Institutions were unloading their risk (High P/E, Large Profit, Etc.) the major brokerage houses were advising their clients to "Buy the Dip".

This has been the same mantra this market has used since it became oversold (at least on the charts) back in Nov / Dec. Even now among many traders there is a huge debate on if this is a normal IT pullback (see chart)  or the start of a true Bear market.



I'm in the camp of the Bear's unless the tape tells me otherwise.

But I will be watching these support levels on the SPX

[ravenquork]

Are You sugesting that atleast some money bought heavily into the pull back?

Quite a bit of Retail money bought into that weak bounce we had last Wednesday. While Institutions were unloading their risk (High P/E, Large Profit, Etc.) the major brokerage houses were advising their clients to "Buy the Dip".

This has been the same mantra this market has used since it became oversold (at least on the charts) back in Nov / Dec. Even now among many traders there is a huge debate on if this is a normal IT pullback (see chart)  or the start of a true Bear market.



I'm in the camp of the Bear's unless the tape tells me otherwise.

But I will be watching these support levels on the SPX

Thanks KCScott,

I agree fully with your explanation and I am also now in the bear camp (as of last Thursday).  I did not understand David's post and my reply left out one critical word.  What I meant to say was - Are You sugesting that at least some BIG money bought ...
I guess he meant that the big boys cashed out, but I wanted to check to make sure.

[nullzero]

Short on MA is looking good right now. What is the rest of the boards take on it?

[WallStreetnBio]

I think what David was trying to say is the "Big Players" put whatever they had left into the market. When there is no more new money going in the market then that's a top and the only way to go is down. 

These big boys like to play games and don't lose money. If they realize the market wont go up or were in the beginning of a bear market they will buy puts sell calls then pull the plug on the money they have in the market thus making there options worth money. This is typical hedge fund behavior. Nothing but manipulation and games but everyone is waiting to see which directions were going. Right now the market is acting like a teeter totter trying to decide which way it's going. IMO if a couple of "Big Players" pull there money this market is going to be hurting.

Everybody thinks were going to be higher at the end of the year and only a few are whispering the start of a bear market. I think a lot of longs are scared and on the edge of they're seats with the finger on the sell button. All we need is one more trigger or catalyst to confirm a bear market in my opinion. The jobs number could do it. The Yen carry over trade could do it. China regulations could do it etc. etc. 

Dave was on to something when he was talking about the FED wont cut unless the market corrects. It's a lose lose for longs and a win win to prove the bear market theory. There is no denying that the two economic powers of the world, China and US, are slowing. If US slows China will fall apart. It just doesn't make any sense on how a communist government can have PE Ratios higher than the US example, BIDU, FMCN, HMIN, SOLF to name a few. China is due for a huge correction. For god sakes people in China are buying stocks with credit cards! If that's not a signal for a correction I don't know what is. And its like everyone thinks ok we went down one day now everything is cheap get back in. Well Dave is right...psychologically you are attracted to stocks and tell yourself they're cheap but they will only go down again. Typical bear market.

Dave I don't know if you will read this but if we get confirmation of a beginning of a bear market I think we should short some ETF's like FXI and PGJ. The reason is you don't have to wait for an up tick to short so you can literally pound these things into the ground by shorting. Also these ETF's poorly reflect the underlying asset because they trade at a higher value. If there is a flight to quality it will be individual stocks not a bloated basket.

There I vented...good night 

[realcoolhead]

I don't necessarily disagree with your points in general, but the following is not true. I came from China 14 years ago and I regularly visits China. People in China DO NOT have real credit card, what they have are really debt cards, as in they have to have money in the bank accounts to use the so-called credit card.

The stock market in China is heavily influenced by government regulations. For example capital gain tax is exempted in China and any hint of new regulation to levy capital gain tax will induce a massive selling in the stock market. Some "unique" characteristics in Chinese stock market are: you can not short, you can not sell on the same day you buy (ie. no T+0) etc. Whatever conclusions you may draw from this.

I personally think Chinese stock market has not peeked yet because the government will try all kinds of methods to keep it up until the summer Olympic Games next year. The volatility we have in China now has a lot to do with the fact that they will begin to trade stock market futures soon. At its earliest the peak may occur the end of 2007, that's when all the constructions for Olympics will be done and assuming the stock market looks forwards 6 months ahead.

China is due for a huge correction. For god sakes people in China are buying stocks with credit cards! If that's not a signal for a correction I don't know what is.

[tokyopua]

I don't necessarily disagree with your points in general, but the following is not true. I came from China 14 years ago and I regularly visits China. People in China DO NOT have real credit card, what they have are really debt cards, as in they have to have money in the bank accounts to use the so-called credit card.

The stock market in China is heavily influenced by government regulations. For example capital gain tax is exempted in China and any hint of new regulation to levy capital gain tax will induce a massive selling in the stock market. Some "unique" characteristics in Chinese stock market are: you can not short, you can not sell on the same day you buy (ie. no T+0) etc. Whatever conclusions you may draw from this.

I personally think Chinese stock market has not peeked yet because the government will try all kinds of methods to keep it up until the summer Olympic Games next year. The volatility we have in China now has a lot to do with the fact that they will begin to trade stock market futures soon. At its earliest the peak may occur the end of 2007, that's when all the constructions for Olympics will be done and assuming the stock market looks forwards 6 months ahead.

China is due for a huge correction. For god sakes people in China are buying stocks with credit cards! If that's not a signal for a correction I don't know what is.

Great to have the perspective of someone actually from China! 

There is another related rumor we hear in the US, namely that people are mortgaging their houses to buy stocks.  Do you think there is any truth to that?  The other Urban legend type stock-bubble-indicator we hear is that dimsum shop owners and taxi cab drivers are giving out stock advice.

Anyway, their chart is parabolic, seems the government would have to work double time to keep it proped up for another year, but I guess if stocks cant be shorted maybe it can just go on indefinitely.

[WallStreetnBio]

I don't necessarily disagree with your points in general, but the following is not true. I came from China 14 years ago and I regularly visits China. People in China DO NOT have real credit card, what they have are really debt cards, as in they have to have money in the bank accounts to use the so-called credit card.

The stock market in China is heavily influenced by government regulations. For example capital gain tax is exempted in China and any hint of new regulation to levy capital gain tax will induce a massive selling in the stock market. Some "unique" characteristics in Chinese stock market are: you can not short, you can not sell on the same day you buy (ie. no T+0) etc. Whatever conclusions you may draw from this.

I personally think Chinese stock market has not peeked yet because the government will try all kinds of methods to keep it up until the summer Olympic Games next year. The volatility we have in China now has a lot to do with the fact that they will begin to trade stock market futures soon. At its earliest the peak may occur the end of 2007, that's when all the constructions for Olympics will be done and assuming the stock market looks forwards 6 months ahead.

China is due for a huge correction. For god sakes people in China are buying stocks with credit cards! If that's not a signal for a correction I don't know what is.

Great to have the perspective of someone actually from China! 

There is another related rumor we hear in the US, namely that people are mortgaging their houses to buy stocks.  Do you think there is any truth to that?  The other Urban legend type stock-bubble-indicator we hear is that dimsum shop owners and taxi cab drivers are giving out stock advice.

Anyway, their chart is parabolic, seems the government would have to work double time to keep it proped up for another year, but I guess if stocks cant be shorted maybe it can just go on indefinitely.

dont you think thats a problem that there markets are so regulated. the government is pumping there own stock market! what happens when it turns. i think it could go down in history because it could be so ugly

[ravenquork]

"...I think what David was trying to say is the "Big Players" put whatever they had left into the market. When there is no more new money going in the market then that's a top and the only way to go is down.

These big boys like to play games and don't lose money. If they realize the market wont go up or were in the beginning of a bear market they will buy puts sell calls then pull the plug on the money they have in the market thus making there options worth money. This is typical hedge fund behavior. Nothing but manipulation and games but everyone is waiting to see which directions were going. Right now the market is acting like a teeter totter trying to decide which way it's going. IMO if a couple of "Big Players" pull there money this market is going to be hurting."

Makes sense.

Thanks

[realcoolhead]

That's not true. Because there is NO refinance activity whatsoever in China. But there are certain element of truth in this, let me explain:

People in China are "trained" to be very speculative, they "invest" in things that can bring them huge returns in short period of time. A year ago it was all about real estate, people bought apartments like mad (the stock market was hugely depressed back then after the crash in 2004). In many cases they only put down deposits and flip them a couple months later, never mind owning the apartments (Not much difference from some hot areas in US a year or two ago).  Along the way real estate in big cities on east coast skyrocketed. An ordinary apartment in Shanghai could fetch $200K, that's US dollar! Some luxury ones are selling for half million US dollars! Not much less than the price in US, is it?

Now the government is very worried about the outragous housing price. Why? Because it is out of reach to 70% of the population and social unrest could burst out, and that's the only thing goverment cares as far as I can see. So they tried many ways to cool down the housing market. It partially worked, in the sense that in most areas housing price stopped going up, yet they didn't crash, for the reasons I will explain later. Anyhow, as soon as the housing market began to cool down, hot money started to flee, and much of it went to stock market. That's the element of truth I referred to.

Why is that the housing market didn't crash? In some cities like HangZhou (a city famous for its tourism indusitry) and Beijing the housing price is still going up. Keep in mind, China is a very corrupted society right now. Some people still think of China as a Communist country. No, it is maybe 1% of Communism on the cover and 99% of a very corrupted Capitalist country! Hey, I am not saying Capitalism is the sin, but I have to say that, a capitalist system lacking matured law and order is one of the worst scenarios you can immagine. Back to the topic: with corrupted system, those "lucky" builders bought land from government (land was owned by the government in a Communist country, remember?) at token price, they hoard the aparments, they could keep as much as 80% vacancy rate without feeling a pinch in their bottom lines, there is no market force to bring housing price down!

So lots of ordinary people (By ordinary I mean people who make on average $10K-$20K a year. There ARE some filthy rich people in China these days ...) either give up the "dream" of owning their own houses (more accurate, apartments), or they save a lot to pay the downpayment and struggle to make big mortgage payments. That brings up the most fascinating data: with all these years of rapid economic growth, the rate of consumer expenditure vs. GDP actually went down in China! Can you imagine, people in China now consume 5% less relative to GDP than 20 years ago? Do you see how weak internal demand is in China? Exporting is the lifeline of Chinese economy! I totally agree with David's theory of how a recession in US will affect China, not the other way around.

There is another related rumor we hear in the US, namely that people are mortgaging their houses to buy stocks.  Do you think there is any truth to that?  The other Urban legend type stock-bubble-indicator we hear is that dimsum shop owners and taxi cab drivers are giving out stock advice.

[realcoolhead]

Speaking of which, Chinese Shanghai index closed it morning session up 0.58%:

http://finance.sina.com.cn/realstock/company/sh000001/bc.shtml

I won't be surprised to see that it makes new high soon. Someday it will crash, but don't hold your breath for it in the near future yet ...

[nicknite20]

Short on MA is looking good right now. What is the rest of the boards take on it?

i think MA is going down too..had asked David abt it yday..if consumer spending drops, MA will be impacted directly..and its had a very strong run last few months..