That hurt!

My high level of exposure to Chinese shares meant that yesterday's stock market pull back hit me particularly hard. The Chinese PMI (Purchasing Manager's Index) fell to below 50, the borderline between expansion and contraction of the economy. Underlying industries' problems is a cash shortage in Chinese banks, which the government is addressing by continuing to pump liquidity into the system. Sound familiar?

What appears to have spooked US markets is the worry that the contagion will infect US banks. In our world financial system banks lend each other money and a crisis in one economy quickly spills into others.

Having said all that the fall in the market does not look any worse than other bad days. Yesterday's fall was only slightly worse than last Monday's. More worrying for me was the volume spike that occurred last Friday just as the market squared up to the beginning of this week's horrible 262 point fall (so far).

The picture provided by the S&P is somewhat less frightening. The price movement is comfortably within the channel that has established itself since the high of December 31st. Price movement is also well short of the latest support line.

That's how it looks as of last night. We shall know more as the markets open today. I'm ready to run for the hills, or not, when we see whether the mood remains gloomy.

The pull back has affected the FTSE too. I was already worried when I saw the price action on Wednesday. For the second day running the market pulled back sharply from a new high creating what is known as a tweezer pattern in candlestick chart analysis. Not good news. See what happened after a single candle version, the shooting star.