Market Plunge Alert—–Margin Call Originating In China Roiling All Markets

Cycle screening measures were weaker on Wednesday in line with the loss in the averages. The aggregate measure turned down from deep in negative territory. Unless there’s an instant rebound on Thursday, this could be a crash signal. It doesn’t guarantee a crash, but it is a red flag. 8 of the 9 component measures are on the sell side on balance. 6 month cycle measures never came close to getting back to the buy side in the little rally over the past four days. Nor did either of the other current status measures. That kept us suspicious of the rally.

I want to repeat what I wrote last night. Margin calls and restrictions on selling in China will force Chinese wealth funds and other major players in that market to sell wherever they can around the world. The Greek tragedy playing out in Europe does not help. It may help Treasuries in the short run, but stocks remain extremely vulnerable.

China and the world will learn that it cannot insulate itself from its insane bubble promoting policies by forbidding selling. It’s a big world, and the big China players have access to it. China’s markets are imploding and could take the rest of the world down with them. We got a taste of what happens when Chinese wealth funds face a cash squeeze and can’t sell at home in June of 2013. That was a tiny taste. This time follows an epic drunken bacchanalian feast of margin and mindless speculation. With Shankhigh virtually shut down, Tokyo, New York, and London will be the vomitoriums.

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