Pithaly

14th March 2008

It's known to technicians everywhere as a death cross, and it is happening on the Shanghai Composite Index. That's the index that has jumped by over 450% during the last two years--a sure sign of a speculative bubble.

A death cross is formed when the 50-day moving average of a stock falls below (crosses) the 200-day moving average. It indicates that there are currently more people selling than buying the stock. It is as bearish as it gets.

And it's not the first time the exchange has seen the "death cross," either.

As you can see, the death cross came twice on the index over the last five years, first in 2003 and later in 2004. Each time, of course, the index dropped dramatically, culminating in a 50% decline over all.

And while a third death cross hasn't actually completed yet, the Shanghai Composite continues to drop even as a Bernanke-inspired rally pushes the Dow higher. The index actually lost nearly 3% on the same day the Dow rallied 440 points.

http://seekingalpha.com/article/68518-why-it-s-not-too-late-to-short-china?source=side_bar_short_ideas