Chinese Stock Market is going to decline another 30%.
The Chinese government thinks it can control the stock market. No amount of money artificially pumped into the financial system is going to be enough to reverse the decline in the Chinese Stock market.
The Chinese stock market will decline another 30% for the following reason:
A trend has its momentum. This momentum tends to usually carry the trend out of its normal state and overshoot. Overshooting happens both on the upside and downside.
The following quotes from famous investor George Soros explains the theory of overshooting:
"Once a trend is established it tends to persist and to run it's full course." - Sentiment changes slowly in trending markets (up or down) and extremely fast in choppy, range-bound markets. When a long-term trend loses it's momentum, short-term volatility tends to rise. It is easy to see why that should be so: the trend-following crowd is disoriented. Boom-bust processes are asymmetric in shape: a long, gradually accelerating boom is followed by a short and sharp bust. Consequently, most of the credit contraction can be expected to occur in the near term. Currency movements tend to overshoot because of trend-following speculation, and we can observe similar trend-following behavior in stock, commodity and real estate markets, of which Dutch Tulip Mania was the prototype."
The theory of overshooting first developed by economist Rudi Dornbusch has applications in foreign exchange markets, in any dynamic event involving human behavior such as population growth, love, as well as in control theory, signal processing electronic, and mathematics.
This theory's application in love goes as follows: remember the euphoric times one goes through when falling in love with someone new first time. We humans tend to overshoot, overlove. After a while, we come to realize our irrationality, adjust our feelings, and move towards a steady state where our feelings are more normalized, as we go through a painful settle time.
Similarly, after a chaotic period of readjustment, called settle time, the Chinese markets again will reach its steady state after, I expect, declining another 30%. There is no need to blame anyone. The best thing the Chinese can do for their stock market now is to do nothing.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.