Chinese tech stock crash is now the worst ever

We need to talk about tech

Whenever a conversation starts, "We need to talk about...", you know it's not gonna be good. And there is no worse not-gonna-be-good than Chinese tech stocks.

We've touched on this sector a couple of times. In September, the sector was about as washed out as it had ever been, with more than half of the stocks falling to a new low and the average stock suffering a massive 60% drawdown.

Over the next couple of months, the stocks did exactly what they should, which was precisely nothing. Bellwethers like Tencent were holding up well, showing relative strength and following through on their virtually perfect record of savvy stock buybacks.

And then the floor fell out.

The latest down leg has surpassed the financial crisis, with the average stock down a massive 74% from its 52-week high. 

As a result of the persistent and broad-based selling, the sector recorded what is perhaps the most astounding metric that I've seen in the past 20 years, involving the percentage of these stocks falling to a 52-week low at the same time. Combined with other breadth and valuation measures, this sector is seeing selling on par with 2 other industries that investors abandoned over the past 7 years.

A quick shift in gold momentum

A short-term gauge of momentum shows a sharp contraction in the price of gold futures. The 5-day rate of change for gold declined by more than 6%, with the commodity fewer than 5 days from a 252-day high.

Dean assessed the outlook for gold futures when the 5-day rate of change declines by more than 5% as the commodity remains 5 days or fewer from a 252-day high. 

This signal triggered 21 other times over the past 52 years. Returns were compelling, especially compared to times when gold futures were more removed from a recent high.