This Ain’t No Party, This Ain’t No Disco, This Ain’t No Panda Bear

The Shanghai stock index fell 7.3% today, taking mainland China’s equities to 4193, now off almost a thousand points from their high only eighteen days ago. That’s down 20% from June 8th. Trading was suspended for almost two hours to stem the drop but to no avail.

Of course, that still leaves Shanghai up by 100% for the year, but it is clear that the speculative frenzy has come to a screeching halt for now. The CSI 300 blue-chip index plunged 7.8% to a more than two-month trough, while the smaller Shenzhen Composite fell back by the same margin. It closed close at its lowest level since May 19. The ChiNext (up-and-comer board) was the hardest-hit, spiraling down 8.4% to close at a more than one-

IG's market strategist Stan Shamu wrote today in a note: "Reasons for the slump in China stretch far and wide, including deleveraging, frothy valuations and extreme volatility causing nervousness. While some markets in the region seem to have ignored some of the wild swings in China for a while, it's now certainly casting a shadow on some key markets." IG operates out of Singapore and London among other spots around the globe.

We would add also a casino mentality that focuses on short- and medium-term gains over long term gains to the point of obsession. Average P/Es for Shanghai are fairly decent, around 19x. But within those averages are too many stocks running at 67x and more. It’s a bear all right, and not a panda bear.

Many advisers are touting Shanghai as a buy at 3800. That might tell you something – about wishful thinking if nothing else. However, there are others who contend that the overall correction –­ like having your hair yanked out by its roots – could reach 50% and more. That would mean a free fall to approximately 2600. Ouch.

As Mr. Shamu said, this deceleration/correction is casting a pall on other regional markets, although the Nikkei was down only 0.3% and the Hang Sen was down only 1.78%.

Elsewhere, trading on continental European exchanges was solid if unspectacular. The DAX and CAC, Germany and France, were both up barely, despite worries about Greece.

The S&P 500 is off slightly, while the Dow is hanging on to small gains as we head into the weekend. The NASDAQ is down largely on poor earnings reports on the tech sector. One component of the exchange, Micron, was down 20% today. All three New York indexes are just off their lows of the day.

Gold has turned higher in afternoon trading after being off earlier on. A stronger dollar is hampering the yellow precious metal’s chance to move significantly higher.

Crude seemed to tread water today, down steeply in early New York trading, but has since recovered. Greek fears are infecting the energy sector, as are concerns about uncertainty about an Iran nuclear deal. If that deal doesn’t go through, we will likely see a ratcheting up of sanctions on Iran and perhaps a western embargo upon some oil exports from that country.

However, it could be that the top mullahs there are posturing, using their bull pulpit to rouse the faithful with anti-Western rhetoric once again. It’s an inopportune time. The West is trying to move closer to Iranian-backed Shia militias in the fight against ISIL in Iraq and Syria. It seems as if that larger consideration should compel all the interested parties to bargain in good faith.

The euro lost about half a percentage point against the U.S. dollar today, currency traders behaving less optimistically about Greece than equities traders in Europe.

Greece also kept bond yields subdued, although we believe there is a breakout coming soon. Once we move closer to the Fed’s September meeting, fears of a rate hike will really start ginning up.

Wishing you as always, good trading,