The China Bubble Is Ready
to Pop
By Jeff Clark
January 7, 2010

The Chinese growth miracle is hogwash.

At least, that's the opinion of famed short seller Jim Chanos – who is most noted for uncovering the fundamental flaws with Enron. In a recent report put out by his hedge fund, Chanos compared the credit expansion in China to the U.S. subprime market and the housing boom before they went bust.

"It's Dubai times 1,000," he says.

Forbes has also joined the "bearish on China" party... A recent article points to "a speculative frenzy of borrowing" and "government bureaucracies foisting debt on state-owned business enterprises."

Nothing says "bubble" like a rapidly increasing pile of debt. And right now, there is no bigger credit excess than the Chinese market.

The Chinese stock market is a balloon looking for a pin. By the look of the following chart, it may be close to finding it...

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Based on the negative divergence on the MACD, a momentum indicator we've discussed many times in Growth Stock Wire, the odds favor break to the downside.

Given that the chart is bouncing up into its resistance line, now seems like as good a time as any to sell China short. There's the potential for a huge move here. And if Jim Chanos and Forbes are right, there's a lot of money to be made as the China bubble pops.

Best regards and good trading,

Jeff Clark

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