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Buyer Beware

By Jeff Clark
Tuesday, September 25, 2007

Chinese stocks are on an amazing run.
 
The Shanghai Stock Exchange is up almost 200% over the past year. And it's going parabolic.
 
As a friend of mine said recently, "Chinese stocks are just like the food. You buy one stock, and 20 minutes later you want to buy another."
 
Just look at this chart...
 
 
But unlike a bad serving of moo shoo pork, which might cause a little indigestion, buying into this market after such a dramatic move higher could be terminal.
 
There's nothing logical about this type of move... It's all about momentum.
 
Logic and momentum often follow the same path. Sometimes, though, momentum gets too far ahead. The results are almost always disastrous... But it takes a while to play out.
 
Think about Internet stocks back in 1999. The disconnect between logic and momentum lasted forever. Investors rode stocks like JDS Uniphase, Sycamore Networks, and Commerce One to dizzying heights.
 
Fortunes were made on the way up – just as fortunes are being made in China right now. But even bigger fortunes were lost when the Internet bubble popped. And the same fate awaits those who stay in China too long.
 
Chinese stocks haven't yet reached the level of popularity that we saw with Internet stocks in 1999. So there's probably a bit more upside to go, and it's still too early to short sell the sector. But we're getting really, really close.
 
My guess is that by January 2008 – along with toys, dog food, and jogging shoes – the next big stock market decline will be made in China.
 
Best regards and good trading,
 
Jeff Clark




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Market Notes
Worldwide bull market: Brazil, India, Australia, Canada, Hong Kong, Singapore, Korea, and China ETFs hit fresh highs.
 
China is booming... CNOOC, China Mobile, China Life, Sinopec, China Petro & Chemical, Guangshen Railway, PetroChina, and Yanzhou Coal at new highs.
 
Steelmakers still climbing... new highs for POSCO, Companhia Vale do Rio Doce, Schnitzer Steel, Arcelor Mittal, Rio Tinto, and Companhia Siderurgica Nacional.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%