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Monday, April 20, 2015

Daily update 4/20 Chinese real estate

The PBOC lowered reserve requirements after the Chinese stock market closed which sparked much stock buying in Europe and the U.S.  Those dip buyers from yesterday were handsomely rewarded this time.

We closed the big gap down from Friday.  However, that stopped today's rally dead in its tracks.  The breadth was strong once again at +67%.  There were only 58 new highs though.  Volume was not very good either.  I think today was probably a one day wonder.  It served to make a lot of people relax after Friday though.  That is not necessarily a good thing.  I suspect this will roll over.

The futures tested above the 18 SMA today, but failed to stay there.  We did not do enough today to overcome Friday's negative action.  This chart looks like it could tip over again quite easily.  For the bulls to begin to get control back they need to get a bar to close above today's high.  That may be tough resistance.

The pattern of up Monday's this year held today.  Remember that Tuesdays and Wednesdays have been weak though.  Upside follow through tomorrow could be tough to come by.  Now that we filled the big gap down sellers may reappear.  The bulls need to show up again in force tomorrow morning. 

The PBOC lowered reserve requirements yet again to hopefully spur the Chinese economy.  Check out this chart of real estate prices.


While there have a been a couple of times in recent years where home prices were soft this is much different.  The housing bubble bust in the U.S. cratered the global economy.  A real estate crash in China might be even worse for its economy then what we saw in the U.S.  Check out this chart.


I have been reading for years that Chinese investment in real estate was much larger then in the U.S., but I had no idea it was this out of whack.  I certainly understand why the PBOC is panicking these days.  The surge in their stock market suggests people are now moving out of real estate as an investment.  Isn't it going to be hard to stop price declines in that mode?  The depression that has been going on in Japan since 1989 started with a huge real estate bubble pop.  Many people seem to think China can let the air out easy.  World history is littered with popped bubbles so this isn't new.  Popping one without cratering the economy would be new.  To my knowledge nobody has ever done it.  This is likely to be an evolving story for quite some time.


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The information in this blog is provided for educational purposes only and is not to be construed as investment advice.