Should the "Dumb Money" selloff Steve writes about occur, one of the most vulnerable indexes out there is the "Dow Industrials of China," the Shanghai Composite.
The Shanghai Composite is the most widely used gauge of Chinese stocks… and it's managed to carve out an interesting stock chart.
We recommended buying emerging markets like China in our special "rebound trade" series in December 2008. Soon after our recommendation, the Shanghai composite screamed 75% higher in less than year. It then sold off after reaching a blow-off peak of 3,400 in August 2009.
The Shanghai composite made three attempts at besting its old high… with each attempt failing more miserably than the previous one. A repeated set of failures like this is usually followed by a sharp correction… It's a strong sign all buyers are exhausted. But the recent flood of money and bullishness into global stocks has prevented this natural decline. In just the past few months, the index has made another attempt at those old highs. Chances are good it will fail again.
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