The Shanghai index has dropped over 30% since mid June. Does that make it an opportunity?
Ordinarily a huge move in a market brings out the bargain hunters. One of my best trades ever was buying stocks at the height of the financial crisis purely on the basis that decent companies had lost between 75-90% of their values purely on the panic selling
The current 33.92% fall in Chinese stocks would normally have me thinking about catching that falling knife, at least for a long term trade by cherry picking the best companies that have been hit hardest but would be most likely to recover the quickest
Shanghai composite daily
The problem is that this is China and that always comes with additional risks
Firstly, no matter what Chinese officials do they can't seem to stop it right now. The latest block on selling stocks may have an effect but we'll need to see by how much and whether it lasts
Secondly, the market is always jittery over China. No one trusts it, no one trusts its companies, no one trusts the numbers. When things are going swimmingly everyone ignores their fears to try and grab a profit. When it's looking like going downhill those fears come back to the fore and the sell button gets hammered
There's always a dark cloud of doubt hanging over China and this particular phase seems darker than others before it
On its own I would probably look at this move with a view to scale into longs. However, as I warned yesterday it's not just China that is showing signs of trouble and so I'm taking a more cautious approach
The tech looks pretty clear for trading anyway. The 3404 level looks strong. The low at 3421 is probably the result of some technical buying ahead of that level. 3100 is looking like the lower line in the sand. 4100 is the level we'll need to get back above to wipe out a lot of this move south
So what do you folks make of these moves? Is it the perfect dip or just the start of something bigger? Do you fancy running to it or running away from it?
