NEW YORK (TheStreet) -- Chinese stocks sold off again Wednesday with the Shanghai Composite closing down 1.3% at 2,926.3.
Even as the People's Bank of China lowered interest rates by 25 basis points and the reserve requirement ratio for most big banks by 50 basis points, the downward spiral continued. How far can the Shanghai Composite fall? Let's look at its chart and offer some technical thoughts for some clues. For context, the Shanghai Stock Exchange Composite Index is a capitalization-weighted index covering all A & B shares on the Shanghai Stock Exchange and dates back to December 1990, according to Bloomberg.
The above chart from Bloomberg shows the huge run up the past two years with much of the advance coming in the past 12 months. If you remember the big up and down moves in commodities back in the 1970s then this chart is a "throw back." Bear moves in the 1970s were faster and steeper than the bulls. Sugar needed about three years to go from $0.06 to $0.66 but it gave it all back in maybe nine months. The Shanghai Composite has retraced more than two-thirds of the advance in short-order and could well erase all of its gains.
Of course, for the Chinese markets to improve, the real focus should be on the Chinese economy itself. The Chinese economy continues to face domestic headwinds from excess capacity in many industries, oversupply in the housing market, high debt and GDP, as well as uncertain external demand -- all of which present real growth risks through this year and into 2016.
-By Bruce Kamich and Sebastian Silva