Shanghai Exchange Resembles NASDAQ Bubble

Apr 5, 2008: 3:19 PM CST

In case you don’t follow global markets, I thought I’d show you the amazing, euphoric rise of th Shanghai ($SSEC) Stock Composite Index (China) and its precipitous fall and compare that to the US NASDAQ Composite blow-off of 2000.

The monthly chart shows a wild ride for investors, including the stratospheric rise from 2,000 to 6,000 in less than a year.

The precipitous fall from 6,000 to near 3,000 has taken less than a year to occur as well.

What did the NASDAQ look like?

It looks very similar, doesn’t it? Bubbles still form today in both stocks and global indexes. In 2007, we heard about how China was becoming a super-power and how their population was growing and their industry was booming. All that is true, but that does not translate instantly into overnight wealth in their stock market. Traders can bid prices up to euphoric emotional levels and eventually prices will revert back either to logical levels, or beneath logical levels, swinging the pendulum to the opposite extreme.

Be aware that overseas markets can affect the US Stock Market, and especially certain sectors of our market. Before concluding, let’s peek at China’s weekly chart:

The index even had the little ‘throwback’ or ‘dead cat bounce’ or bear flag that the NASDAQ had in 2000 before plunging starkly to form its bottom in late 2002.

I would guess the Chinese stock market has a little further to go to the downside before entering a period of consolidation in order to build a base for the next more reasonable price appreciation.

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