Reports that Chinese fund managers will be allowed to lend stocks for short selling is hammering stocks as we approach the US open. Futures on the Chinese indices are down more than 5% while the US is seen opening just shy of 1% lower and stocks in Europe are also being hit badly. What we’re seeing right now is a combination of panic and technical levels being wiped out and exacerbating the move lower.
I also don’t think it helps matters when people have spent the last week or so both preparing for and discussing the prospect of a correction. The S&P for example appears to be topping out and I think a 6-10% correction is easily on the cards. I would not be surprised to see 1,970 hit in the coming weeks. The correction in the DAX is already well and truly underway, down now 5% on the week. The late March low of 11,620 now offers the next level of support for the DAX at which point we may see value hunters picking it up again.
People thought it would be earnings season that triggered this correction but it appears the Securities Association of China has beaten them to it.
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