Hey folks, the Shanghai Composite, which has been leading the US market
for about a year now, has hit its first level of support. I would expect
a bounce in China, which of course will offer hope to the US equity bulls.
Last
week, I pointed out some key technical levels on the Shanghai Composite
Index. See figure 1 a weekly chart. Last week, we were 7% above the first
support level, and this week we are at those levels. I would look for Chinese
markets and possibly copper and crude oil to stabilize at these levels. It
should be noted that crude oil and copper have continued to sell off this
past week, and these economically sensitive commodities did not participate
in the bounce that was seen with equities.
Figure 1 Shanghai Composite/ weekly
In terms of offering hope for the equity bulls, of course, any story can be
(and will be) spun positively. From a technical perspective, it still
is and always has been my contention that investor sentiment must turn
bearish (i.e., bull signal) and key support levels must be broken before a
new trading rally can start. If this doesn't happen, then it will be the same
old story of quick rallies and sudden sell offs ala March to October, 2007.
In hindsight, that was a market top, but it wasn't confirmed until the first
bull signal (i.e., when investor sentiment turned bearish) failed to lead to
a meaningful bounce.
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