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Chinese market mirroring 1929 crash: Analyst

Aug 22, 2015, 01.33 PM | Source: CNBC

Thomas DeMark, founder and CEO of DeMark Analytics, told CNBC Friday that the current turmoil on the Shanghai Composite index is already on course to echo the crash of 1987 and 2001, but could still fall even lower.

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Chinese market mirroring 1929 crash: Analyst

Thomas DeMark, founder and CEO of DeMark Analytics, told CNBC Friday that the current turmoil on the Shanghai Composite index is already on course to echo the crash of 1987 and 2001, but could still fall even lower.

Chinese stocks are set to fall another 9 percent in the next four or five days and are in danger of replicating the hefty losses seen in the US exchanges in the Wall Street crash of 1929, an analyst has told CNBC.

Thomas DeMark, founder and CEO of DeMark Analytics, told CNBC Friday that the current turmoil on the Shanghai Composite index is already on course to echo the crash of 1987 and 2001, but could still fall even lower.

“That’s what could happen,” DeMark said, detailing the technical analysis that his company use to predict stock market declines.

“In 1929, the market declined 50.6 percent. So that was a warning that there was something more serious in the market breakdown.”

DeMark added that his company turned bearish on China on June 12, just as the market reached a top and has – more or less – correctly predicted the downturn of 38 percent that has occurred since.

He now sees the blue-chip index – which closed 4.3 percent lower Friday at 3,509.98 points – dropping to 3,282 points, or even 3,200 points. At this juncture, his technical models state there could be a 40 percent rally, which would mirror similar moves in 1987 and 2001. However, he added that a further fall was still possible which would echo world stock markets in the time of the Great Depression.

“We can’t determine that right now. We think there’s going to be great rally, meaningful rally off the 3200 (points), or even worse case 3282, and we’ll see a retracement of 40 percent of the decline. And at that time we can reassess what the outlook is,” he said.

DeMark spoke of a “preordained” move in the Chinese stock markets. Authorities in Beijing have curbed short selling and several publicly listed firms have been able to suspend the trading of their shares over the last few weeks. Economists have highlighted that the Chinese officials might be trying to force a bottom in the Chinese markets or “shake out” foreign investors from speculating on its indexes.

This sort of “interference” creates a vacuum in the market, according to DeMark, who said it adds to a growing sense of pessimism.

DeMark is no stranger of making bold market predictions. In early 2014, he told CNBC that US stocks had reached an “inflection point” that resembled the period prior to the 1929 stock-market crash. He did stress that certain caveats and preconditions would need to be met before “turning all-out bearish” but the market turmoil in US stocks failed to materialize.

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