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[pedro]

Thursday, May 10th. - Stock Trends, Charts, and Commentary
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Important China Warning Update: What is China's Zhou Xiaochuan going to do now?

Zhou Xiaochuan is the governor of the People’s Bank of China. Like us, he knows that the Chinese stock markets
are in a bubble and he is very worried about a precipitous decline. His power on making such comments, comes
from the fact, that in the past, Chinese investors always took the Government's work as "Gospel".

In the past, all he had to do was "issue a public warning" and investors would listen to him. Now, Chinese investors
are ignoring him. He even tried sending out a wake up call by having 3 major, State run newspapers run headline
stories decreeing his warning on Tuesday. Instead of the market pulling back, it jumped up 3% in one day.

That now leaves him only one option. If they won't listen to what he says, he will have to initiate some kind of
banking/government action that will force Chinese investors to slow down.

The Worse timing in the world?

If Zhou just waits until next week, the Shanghai will hit its Major 12 year resistance and should pull back on its own.
About the worse thing he can do, is to initiate action to force the Shanghai down right when it is ready to
go down on its own. That "double whammy" could have some very nasty, unexpected results for Zhou.

He is stuck. If he doesn't do anything and the Shanghai goes into a "blow off" beyond the 12 year resistance,
then he is in big trouble and will be blamed for not stopping it.

If he initiates actions that forces the market down, just as it is ready to retract on its own, that could give
it a damaging nasty fall beyond what would have happened. If that happens, he have to take the blame
for a damaging correction.

His best course of action is to just wait until next week and let the Shanghai hit its 12 year resistance. The
time for him to have done something was months ago.

This morning's Shanghai update ...

Action on the Shanghai has been straight up this week. Two weeks ago, it was 13% away from it 12 year target,
and this morning, it is only 3.7% away. If it continues at this pace, it will reach the Major Resistance
before next Wednesday morning.

Like all bubbles that have gone straight up in parabolic fashion, their retreat is a reverse, sharp move to the downside.
Take a moment to look at the chart below from the last Fall until now. Its a picture of a bubble, that is about as big
as you will ever see in your lifetime.

The danger in all this, is a spill over into the worldwide markets. In February, a large Chinese pullback had
our market drop. In a short period of days, we rebounded and so did the Shanghai. This time, some
"Expert Analyst" on the Chinese situation are saying that, "The link between the Chinese economy and the
Chinese stock market is not that strong ... and therefore will have minimal impact".

Minimal impact on what? They are suggesting that a Shanghai correction will have minimal "long term" impact
on the Chinese economy. That's is very probable and possible. However, in the mean time, and in the short
term, a sizeable drop would cause a panic. People react irrationally in a panic, and fear breads fear until
things stabilize and confidence comes back. I really don't think it is possible to have an "isolated" panic
reaction by Chinese investors that does not, somehow, spill over into the rest of the investing world. If we
were not so inextricably tied together as trading countries, I would agree that it wouldn't affect our markets.
If it was a country like the Dominican Republic, the world would hardly take notice.

How long have we been pointing out an upcoming Shanghai drop?

We started our first Alert in early February, and have kept you updated every week since then ... and now ...

Goldman Sachs issued a China Warning this morning ...

Now it is May 10th., and this morning, Goldman Sachs Group just announced that, "China's stocks may face a "correction''
as valuations have exceeded earnings prospects after the benchmark index almost tripled in the past year."

They went on to say ... The Shanghai is valued at 42 times reported earnings, more than double the Morgan Stanley Capital
International Asia Pacific Index's 19 times. China's investors opened over 350,000 new brokerage accounts on Tuesday. (This
was the same day that Zhou published his warning in the 3 Major Newspapers). This was the highest daily amount of new
accounts opened since June 2005.

http://www.stocktimi...arketUpdate.htm

Chart can be found at this link. Don't know how to upload it.

pdl