Oil can’t seem to get a break. After falling just below $27 last week, oil finally rallied back to $32 before falling back to just under $31 on Tuesday. An oversold bounce was naturally due, with perhaps a bit more to come. But the oil market’s doing exactly what I said it would – cratering!
Meanwhile, in la-la land, stocks have been so focused on the decline in oil prices that they just ignored the other big trigger for a stock decline.
And that came yesterday, when the Shanghai Composite index of Chinese stocks moved 3% below its August low of 2,850!
I wrote back in June of last year that the bubble in Chinese stocks looked ready to pop! Sure enough, it started the next day, fell about 32% in a month, rallied, then fell another 26% by late August. Together, that was a crash of 45%, from a high of 5,200 to a low of 2,850 in just two and a half months.
Then, after testing that level three times over the past two weeks – and avoiding it for several months – it finally broke beneath that level on Tuesday’s trading day in China.
I forecast back in early 2015 that oil would hit $30 to $32 by January of 2016 – and it went even lower than that. That was the other trigger for a global meltdown, as falling oil prices were bound to trigger the next junk bond collapse that is now already underway.
But at this point, I am now more worried about another major crash in Chinese stocks.
Think about it: have you seen another market, besides oil in late 2008, crash that much, that fast?
This post was published at David Stockmans Contra Corner by Harry Dent ‘ January 28, 2016.
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