Shanghai Express -- #2

There is a link to the Shanghai Stock Composite at the end of
the post. As all but the dead know, this market has been in a
very sharp parabolic upmove since early 2006, as China's retail
investors rediscovered their market following a long drought.
There is a mania underway. To qualify as a bubble under my
tough parameters, the SSEC, now just over 4000, will need to top
6700 by late 2008. That is a tall order after the run-up so far,
but a true bubble is far more spectacular than most realize.

There is long term trend resistance by some measures in a range
of 4000 - 4200. A tightly drawn parabolic curve had the market
topping out at prior trend resistance of 3350 in March, but
the market has taken that all out in a nearly vertical assent.
There is a broader, looser parabolic loop that has a top up
around 4500. Suffice it to say, this is a doozy of a mania.
Moreover, despite mentions of mania and bubble in the Chinese press,
the folks are still flocking in to open accounts and buy.

It is worth watching, not only because it is exciting, but because
the Chinese authorities could, at some point, try to stop it. And
this could involve policies that might reverberate in other markets.

I warned several times over the years that when mercantilism turns
greedy as it has in China, temendous mania activity and eventual
financial and economic dislocation can occur. And here we have a
case where rampant real estate speculation has shifted to the
local equities market.

Keep a weather eye on this baby. The SSEC