360 Degrees on China's Selloff

Shanghai = Nothing
By James Altucher
5/30/2007 8:58 a.m. EDT

There are several reasons why the other Asian markets ignored the Shanghai 6% slip and why I think the U.S. markets should do the same (whether or not it does, is a different question):

1. Clearly even a 9% slip is meaningless since not only did the U.S. market get back to all-time highs after the Feb. 27 9% down move in Shanghai (the Dow, at least), but the Shanghai market went another 20% beyond all-time highs.

2. A 6% move in the Shanghai market represents a slip of about $90 billion in market cap value. That represents about 0.7% of the total market capitalization of the U.S. market. In other words -- nothing.

3. This move in the Shanghai market has nothing to do with the Chinese economy. The market itself represents only a small sliver of the economy and the down move is reflective only of a tax regulation and nothing to do with the economy.

4. The private-equity market here is still booming, removing shares from the U.S. markets almost every day, on top of the shares being taken off the shelf by the massive amount of share buybacks happening (see, for instance, IBM's news this morning). This is hard to ignore. All markets are supply and demand and we are potentially on pace in the U.S. for the slowest IPO year in the past 10 years (2003 might be lower, but that's it).

Who knows what happens today? But knee-jerk dips will probably create buying opportunities among takeover targets, short squeezes, and stocks with heavy insider buying.

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Shanghai Surprise?
By Barry Ritholtz
5/30/2007 6:24 a.m. EDT

Shanghai was down 6.5% this morning.

The alleged cause was news that Chinese officials were raising the tax on stock transactions from 0.1% to 0.3%. They have been trying to reduce the speculative bubble there, but to no avail.

Marketwatch reports that "Outside of China, global markets declined on Wednesday, but not precipitously -- the Nikkei 225 closed with a 0.5% loss in Tokyo, and the FTSE 100 declined 1.1% in London."

What will be interesting today is whether or not it sticks. Here in the U.S., markets have, up until very recently, been clawing back from any negative opening. It's only over the past two weeks that we have seen tired trading, with an inability to sustain a strong open.

The failure of the SPX at the prior highs -- 1527 on closing basis -- and an inability to make a new high has some technicians wondering if we are looking at the mother of all double tops (I have no opinion on this).

Whether the straight up market is merely tired, or overdue for some sort of pullback, or if this is the start of something else is unknown for now.

Futures are in the red, with the Dow down 70, the Nasdaq off 10, and the S&P500 off 7.5.

Today's trading will be quite interesting to say the least.

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