By Gavin M.
Are you having fun with all the volatility? We are seeing extreme swings on all major global indices. If you are a daytrader, you are having a great time. If you are a swing trader - well, depending on whether you timed it right, you may also be profitable.
The Chinese market's problem is not sellers. The problem is also not because of evil speculators. It is a problem of confidence. Confidence, once gone, is hard to get back. Trust and confidence go hand in hand. When stocks are rising, confidence is super high. However, once a sell off begins and investors panic, that trust is gone and fear rages on.
The act of buying really is the act of being confident of a security you are purchasing - be it stocks, futures or forex. Stocks on the other hand, can be manipulated to a great extent but confidence - a human emotion, that is far too difficult. The US and European stock markets are not in bear territory just yet because there is still some semblance of hope and trust that the regulators can maintain its support for risk assets.
There will come a time however when all that intervention and manipulation will no longer be enough. All that margin debt has to unravel someday and when that does, I cannot even imagine how much of a bloodbath it would be.
Perhaps we all should take heed of what is happening in China because we should not be naive to assume it cannot happen to western markets. Where there is panic, there is fear. Where there is fear, there is erosion of trust. When all trust is gone, confidence is all but fleeting. At that point, what else are they going to do? Arrest all short sellers?
Stay safe my friends.
Traders from Equity Sense will be writing on this blog on positions and other market-related things.