Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

How and Why the Chinese Shanghai Stock Market Index could implode ...

Stock-Markets / Chinese Stock Market Apr 27, 2007 - 08:21 PM GMT

By: Marty_Chenard

Stock-Markets

This week, the Shanghai Composite Index has maintained its bubble trajectory angle, and if the angle continues to hold, the Shanghai will hits its 12 year major resistance in the latter half of next month. Why is the Shanghai continuing to move up at such an incredible pace?

Because of supply and demand of investors.


From the supply side, over 10,000,000 Chinese citizens opened new stock trading accounts during the past 4 months. 
Last week ... over 1,000,000 opened new stock trading accounts. 

No matter how you calculate it, that has been an average of 1 million new investors per week for
13 straight weeks in China.

This week, I had a discussion with a Hedge Fund manager about it.  I asked, "How long do you think
the Chinese market can go up by adding 1 million investors per week?"

His answer was, "Practically forever ... because they have over 1.3 BILLION people".

Logic versus REALITY ...

Logically, it seems to make sense.  They have 1.3 billion people.  At 1,000,000 per week, it would
take 25 years for every Chinese person to have a stock trading account.

But, a statistical analysis shows a DIFFERENT reality for this reason ...

An implosion has nothing to do with how many people live in China.  An implosion has everything
to do with the Week-over-Week average number of NEW investors moving into the market ... and
right now, the average has been 1 million per week for 13 weeks.  They can't seem to move above
that average, and part of is has to do with how many Chinese can continue to mortgage homes
and draw cash our from credit card accounts.

The reality is, that if a universe adds 1,000,000 to its base every week, then the growth rate of
the base continues to diminish at a rapid pace. 

Consider this:  In the first week, 1 million open a trading account.  The second week, another million
open a trading account.  What was the increase in the size of the new trader pool in week 2? 
The answer: 100%

Now let's go to week number 6.  At this point, there has been a total of 5 million new traders added
to the pool (at a rate of 1 million per week.)  Now, at week six, another million are added.
What was the increase in the size of the new trader pool in week 6? 
The answer: 20%  (1 million new divided by 5 million existing accounts.)

This is now the 14th. week since the new trading accounts have been reported. So, if another
million are added this week, then this week would have only increased the pool size by 7.14%,
a far cry from the 100% added in week 2.

Below is a chart to show you how the percentage of the investor pool size decreases even
though 1 million is added every week.



If you look at the chart, you see how the first 5 weeks astronomically increases the size of the pool with a fast growth rate.

The red bar on the chart is week number 20.  At week 20, another 1 million only adds 5% to the size of the pool.

The point is this ...

Every time someone in China gets a second mortgage, and draws his charge card credit down for cash to use in the
stock market, he has tapped the Big Portion of his assets/credit.  The only way to get new money for the stock market
after that is from the left over discretionary income from his monthly wages ... not much in comparison to his initial amount.

So, in this Ponzi scheme of things, the 13,000,000 that had trading accounts relied on the new 1,000,000 to buy
their stocks and drive the price up higher so that they could make their expected get rich profits.

Here is the big question:  At what point does the pool get too large, where another new 1 million investors is now
too small an amount to keep the overly large base of investor holdings from moving up?

At week 52 on the chart, the new 1 million addition of investors only increases the total investor base by 1.92%.
In week thirty three, 3.03% of new investors are added to the base.

Here is the next big question:   What happens, if in week thirty three, 6% of all the investors decide to take profits?

Let's start the answer with what would have happened in week 2 when 100% new investors were added.
100% buy and 6% sell.  Assuming the average investor amounts are the same, then the market would
have still had 94% new money inflows.

Now, lets go to week thirty three.  What happens when 3% buy and 6% sell?  The selling outpaces the
buying by 2 to 1 and the market goes down.

The point is, that as time goes on, the leverage shifts from a bullish low-risk condition, to a high-risk bearish condition.
When we get too far out on the curve of the chart I posted above, there will be a point where people can't bail
out of the market without it imploding to the downside.

By Marty Chenard
http://www.stocktiming.com/

Please Note: We do not issue Buy or Sell timing recommendations on these Free daily update pages . I hope you understand, that in fairness, our Buy/Sell recommendations and advanced market Models are only available to our paid subscribers on a password required basis. Membership information

Marty Chenard is the Author and Teacher of two Seminar Courses on "Advanced Technical Analysis Investing", Mr. Chenard has been investing for over 30 years. In 2001 when the NASDAQ dropped 24.5%, his personal investment performance for the year was a gain of 57.428%. He is an Advanced Stock Market Technical Analyst that has developed his own proprietary analytical tools.  As a result, he was out of the market two weeks before the 1987 Crash in the most recent Bear Market he faxed his Members in March 2000 telling them all to SELL.  He is an advanced technical analyst and not an investment advisor, nor a securities broker.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules