February 28, 2007
The Rout: 10 Intraday Charts
A lot of my data is messed up (this drubbing obviously strained the system), but it looks like the worst intraday “tone” since July 2002. I don’t have much time to blog this morning, but here are ten “notable” intraday (15-minute) charts. The plunge had a lot more to do with the psychology of the market post-NovaStar than with China, in my humble opinion.
VIX: +64.22%
SPY: -3.91%
DIA: -3.75%
QQQQ: -4.11%
QID: +9.5%
GLD: -3.95%
TLT: +1.26%
EFA: -4.03%
EEM: -8.13%
FXI: -9.87%
Cat: | Time: 8:19 am (utc+8)
February 28th, 2007 at 9:53 am
Chinese stocks aren’t overvalued! I’m sure it will regain that 9% loss in the next few days. ;) It sure was a fun Tuesday.
February 28th, 2007 at 10:23 am
atomic: That’s exactly what my manicurist said. ;-)
February 28th, 2007 at 11:43 am
CM-
I find it odd that gold was down too. I would think people will be running into gold soon , if not today!
The Shanghai correction was healthy considering the 50% run up since late 2006. Amazing to me is the amount of retail money that governs the market rather then institution. This obviously has led to the recent amazing run-up and could be a harbinger for bad things to come.
February 28th, 2007 at 11:51 am
Amir: Yeah, I thought the action in gold was odd, but it’s “high” too … the Bonds did their “fright to safety” thing though.
Your comment about retail vs. institutional money… you mean in China? Institutional money the world over is just as panicky as the next retail punter (maybe more so), in my experience.
February 28th, 2007 at 12:44 pm
Before the flames hit, I was long NXG from 2005 through the summer of 2006 for a triple+, so I’m not a perma-gold-bear.
I thought gold was done last year after the May correction, and still think so.
If the “scare” today was about a lack of economic strength, then inflation isn’t a fear anymore and there won’t be a bunch of rich furriners to buy gold. Makes sense that gold would tank.
Gold was certainly no good to anybody during the last correction (May/June 2006).
February 28th, 2007 at 1:10 pm
Tracking Error
As per Shanghai Stock Exchange, the A and B share indexes are still near the highs and up month to date as of close Feb 27th.
FXI,GCH are much weaker compared to Shanghai indexes. In fact, I’ve never seen such a huge divergence.
I can only assume 2 thngs:
1. GCH,FXI are non China investors, the stocks that they can buy are not the most desirable companies in China. Those are reserved for locals.
or
2. The local stocks are over speculated by local investors. In order to get such a huge up move, there would probably have to be buy syndicates between big locals who agree to sell each other blocks of stock. This happened in Taiwan in 1989,1990. Then Taiwan crashed.
Either way, there is a perception problem regarding Shanghai Stock exchange.
ps. Their website has various bugs.
February 28th, 2007 at 1:48 pm
manuel: The FXI is composed of only 25 H-shares.
% Net Assets Name
10.91 China Mobile, Ltd.
8.88 PetroChina Co., Ltd.-Class H
7.83 Industrial and Commercial Bank of China Asia, Ltd.
6.18 China Life Insurance Co., Ltd.
5.71 Bank of China, Ltd.
4.20 China Petroleum & Chemical Corp.
4.14 China Shenhua Energy Co., Ltd.
3.92 China Merchants Bank Co., Ltd.
3.88 China Construction Bank
3.87 Ping An Insurance Group Co. of China, Ltd.
3.86 CNOOC, Ltd.
3.82 Bank of Communications Co., Ltd.
3.80 China Telecom Corp., Ltd.
3.70 BOC Hong Kong Holdings, Ltd.
3.53 China Unicom, Ltd.
3.34 China Merchants Holdings International Co., Ltd.
2.74 Citic Pacific, Ltd.
2.60 China Resources Enterprise
2.32 China Netcom Group Corp. Hong Kong, Ltd.
2.26 Cosco Pacific, Ltd.
2.17 Zijin Mining Group Co., Ltd.
2.05 Huaneng Power International, Inc.
1.74 Aluminum Corp. of China, Ltd.
1.41 PICC Property & Casualty Co., Ltd.
1.10 Datang International Power Generation Co., Ltd.
February 28th, 2007 at 2:01 pm
CM-
My limited understanding of the Shanghai equity market is that it has a $1 tril value and that over 90% of it is retail investors. I believe retail investors tend to speculate more then institutions and thus can be the impetus for market moving changes as we experienced yesterday. I don’t have the years of experience as you do so this might be anecdotal but I believe it to be somewhat fact. Thoughts?
February 28th, 2007 at 2:33 pm
Amir: I don’t know much about the Chinese stock market actually (though I found an interesting report on it recently that I planned to read, then lost … must find that … found it, oops it’s about retail investors in HK). I don’t think of institutions as an especially stabilizing force, especially in the Chinese market (the little I know about it).
February 28th, 2007 at 4:33 pm
Somehow, I just can’t imagine how “retail” investors could cause an abrupt across-the-board collapse in the Chinese market — even if they did own 90% of the shares. I could imagine leveraged institutional investors causing such an abrupt across-the-board change, however.
February 28th, 2007 at 4:53 pm
Scott,
They don’t own any shares in the market but rather their combined equity in the market accounts for more then 90% of the equity in the Shanghai market. Understand too that this market is currently highly leveraged and there was sell-off for fear of government interference in borrowing for investment/speculation crowd. This article states :
“Stocks in Shanghai advanced today, after their biggest plunge in a decade yesterday on concern a government crackdown on investments with borrowed money will end a rally that drove benchmarks to records”
Panic wary investors causing mass sell off manifests to what we saw yesterday. My argument is that you wouldn’t see this from more seasoned institutional trading unless there is some bigger issue at hand.
February 28th, 2007 at 5:03 pm
Amir: I wouldn’t put too much faith in “seasoned institutional traders” … so much of the market is computer-driven now; these programs feed on themselves, accelerating moves … and remember that it was the institution’s “portfolio insurance” that drove the selling way back in the Crash of October ‘87.
February 28th, 2007 at 8:35 pm
’smart money’ sells at tops in panics.
dumb money sells at bottoms in panics.
yesterday (in u.s.) was all somewhat-smart money, no doubt.
(the real smart money had sold a couple months ago, being early but not perfect).
February 28th, 2007 at 9:26 pm
bob: I dunno, this break kind of came out of nowhere … the smart money I know tends to buy when others are panicky but isn’t any good at selling at “the top.”
February 28th, 2007 at 10:07 pm
DUMMY MANIA!!!
February 28th, 2007 at 11:57 pm
Brant: Yeah, there were a lot of low-risk spots assuming you could find shares to borrow (or go long the QID or other Inverse plays). God help those folks who were spitting into the wind.
March 1st, 2007 at 1:17 pm
[…] The Chairman suggests that the sub-prime debacles of the last few months created this . I mainly agree especially as to this being a selloff related to confidence. […]
March 1st, 2007 at 1:44 pm
[…] The Chairman suggests that the sub-prime debacles of the last few months created this . I mainly agree especially as to this being a selloff related to confidence. […]
March 1st, 2007 at 2:25 pm
Hi maoxian,
I noticed there is only 1 stock in my list have 6 days overbought: ESPD
Is it the show time for bonds from now on? What will happen to the stock market if it come true?
March 1st, 2007 at 2:57 pm
agg: Your guess is as good as mine; I never make predictions. We still allocate only 5% of our investment portfolio to bonds since we’re in our thirties.
March 1st, 2007 at 3:26 pm
My question is: Should I buy ESPD?
Is it the largest electronic marketplaces for “Electronic trading of government bonds”?
Will it become CME,ICE?
March 1st, 2007 at 4:31 pm
agg: No idea, and I never give investment advice. But as my friend Jono likes to say, the next CME is the CME.
March 14th, 2007 at 8:56 am
[…] Ugly. The only nice thing I can say is that the selling wasn’t as bad as the mini-crash of Feb. 27. Here are some key charts to keep an eye on as things further unravel or stabilize (as I expect they well). The 15 Ideas portfolio fell a little over 2% today - about the same as the S&P 500 - with Washington Mutual a real drag… in case you were wondering. […]
July 27th, 2007 at 8:21 am
[…] Selling from the get-go and it was dramatic enough that my data is screwed up … the only comparably bad day this year I believe was on February 27. […]