China market plunged again, giving back 21.2% (A50) from her recent high, and I started receiving some queries on my view whether a bear market has started.
Bearing in mind that I'm a short-term trader, not analyst, I do not offer longer term market views. However, since the beginning of JUN, I have been embracing a deep correction coming for China market, and these are the reasons why...
It's all about learning from history, believing that history would repeat itself, understanding mass psychology, what contrarian approach means, and finally, using Technical Analysis to confirm the story.
Here is what happened ...
"Learning from history":
We had a bull market which started in 2003, ran steadily up for 3 years without any decent pull back, till 2007. Now that it has finally caught the public's attention, and people are finally convinced that good money is to be made in the stock market, and that it would continue to go up, forever (public starts to believe it this way) ...
How do I know this? When you read it from the media ...
(Article from 18 Feb 2007)
When literally every man-on-the-street gets sucked in, including students, maids, retirees and housewives, I understand from history that an imminent crash is due.
***** When I use the word crash here, I'm referring to a big, sudden correction.
(Article from 12 Feb 2007)
I'm even more convinced when not only students in Singapore, but students in China too ... Both articles are within a week from each other.
The first big drop came in 2007 MAR (within a month of the articles). Though it paled in comparison to what came afterwards, it already did it's first round of killing, for some novice ...
For the untrained and unprepared, the damage can be this huge...
To cut the story short, let's fast forward to 2015 (3 weeks ago), and what are we seeing?
Shanghai was slightly above 2000, and more than doubled in value, like no tomorrow, in half a year. Faster, fiercer, without any decent correction.
I started to hear (from radio) that retails in China are now flockiing into the stock market
The public is finally convinced and account opening has surged to all-time-high, and this is happening again, when market is at it's FEVERISH HEIGHT !
With electronic trading, even banana vendor can participate easily.
How much can you make selling a bunch of banana, how about 100 bunch of banana, how about just one click?
Can you imagine the contrast?
If literally man-on-the-street is watching the market, who else is not?
Finally, using Technical Analysis to watch the fight (the greed & the fear), you can see history repeating itself yet again.
*** That's providing you have knowledge on TA, and understanding the jargons.
Lastly, will China market just tank like this?
I do not think so.
She is now almost back to her YEC (Year End Close), and I would expect some decent fight there.
While those who bought high are getting burnt, the experienced are waiting for deeper pull back before going in.
The Chinese government, just like many others, is also committed to some form of QE measure to support their economy.
Except for the Greece issue (which can be a bomb that can go off any time), for as long as the rest of the world markets can hold on at their current levels, there is "no panic", YET. Meanwhile, price continues to fluctuate.
But the main, important point is, I (we) do not need to know.
Under the current economic climate and market height, you can be rest assured of market volatility.
As a trader, as long as you're armed with the right trading skill (correct mindset being one of them), there are plenty of opportunities ahead, plenty of money to be made !!!