Dizzying heights.... are share markets primed for a fall?

The SMH carried an article yesterday, making comparisons between the stock market (crash) of 1987 and the current stock market. Such predictions are not new - one of the more interesting theories is from Mclaren, who says that markets will top out on June 12. Virtually every commentator believes a fall will be due to a meltdown in the Chinese stock market. The Chinese stock market has its fair share of detractors - from Alan Greenspan down to the novice hack believe that if the events of Feb 27 and last week are anything to go by, a dramatic fall in Shanghai will, well ... shanghai the world markets. Came across a differing opinion here.

I think a fall in Shanghai now will have little impact on world markets - that's because everyone expects it, and so it's probably "priced in". In any case, China is not known for the consumption power of its individuals - its known for being the factory of the cheap import. The underlying China story is, therefore, going to continue whether or not the stock market goes into freefall. I think a fall, if it happens, will come from an unexpected area - my favourite at the moment is a dramatic increase in the price of Oil.

So, where do I stand on this debate? The facts:

1. XJO has hit a wall at 6400. Failure to breach 6400 is a bad sign. Its not just the XJO that looks like its in trouble - the DJIA and the DAX look like they're about to be exhausted as well.
2. Bond yields are up - indicating interest rates should rise. That's bad news for stocks.
3. Oil prices are on the move - upwards. We've entered the Hurricane season in the US, and this year is tipped to be one of 'above average' activity. High oil prices = bad news for the economy.

On balance, I think the risk for downside is more than it is for the upside - but not for the reason (China) most (well, all the reports I've read) analysts would like to believe. As a result, I plan to trade more from the short-side on the indices - selling the rallies.