The Shanghai Index had created a multi-year flag/pennant pattern. Back in April, the index was at the top of flag/pennant pattern and the “Power of the Pattern” was suggesting to “harvest at resistance or if very aggressive, short the index!” (see post here)
Below is a chart published a month later, reflecting that not only did resistance hold, a breakdown of the multi-year flag pattern was taking place. Due to the size of China, I felt it could impact global markets and the breakdown was a sign that risk was very high. (see post here)
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Since the bottom of the wedge broke at (1) in the above chart, key markets around the world are lower, with the broad based S&P 500 index falling around 10%. The above chart was created as a reminder that investors should lower global stock market exposure.
The chart below reflects that a more important breakdown is taking place….A 20-year support line is breaking!!!
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If history is any guide, the breaking of this 20-year support line suggests that global risk remains above average and that rallies are counter trend at this time, until the Shanghai can climb back above line (3). The breakdown of the flag/pennant pattern back in May was suggesting to lower risk exposure and from a Macro point of view, this breakdown is sending the same message!
Dan… Thanks for your viewership and sharing. Keep up the great job your are doing for the troops in Afghanistan!
Chris
Excellent chart and excellent breakdown. I watch the Asian markets, then followed by the Eura and US markets and the Shanghi market hasn’t been able to get it’s legs moving for some time. Your chart made it even clearer. Good job!