I wanted to revisit the message of the “Power of the Pattern” 90 days ago, in an attempt to help us going forward. The 6-pack below was a “global snapshot reflecting look alike bearish rising wedges….before a breakdown (5/14).”    (see “Look alikes, Dominoes and Slippery Slides”)

CLICK ON CHART TO ENLARGE 

The look alike patterns were suggesting a domino effect was close at hand, that if one of these key markets broke support they all would and it would be a quick and slippery ride to lower prices.  Correlation risk was off the scale, suggesting that diversification was not going to solve portfolio protection. Investors needed to pull back risk exposure, that was the only answer…

 CLICK ON CHART TO ENLARGE

Now what do we have 90 days later?  A global breakdown of the rising wedge patterns!    The rising wedges were very important 90 days ago and so was the “Flag/Pennant pattern in the Shanghai Index” as I highlighted it was breaking support in the chart below on 5/25. (See post here).

CLICK ON CHART TO ENLARGE

As the Shanghai was breaking the bottom of the flag pattern, the rising wedges were taking out the bottom support lines, all around the globe.  As I shared in the chart above, a further breakdown in the Shanghai index, “should have a sizeable global impact!”

Key support has been taken around the world, which has caused short-term oversold conditions, leading to the 7% rally that started last week, reflected by a very high VIX index (see Panic here).  At this time it is fair to look at rallies as countertrend.

From a Shanghai Index…. Support is support until broken, which reflects the current situation in the Shanghai index at line (1) in the updated 6-pack above. 

If this support is taken out in the Shanghai index (Line 1), odds move a ton higher that any counter trend bounce is over and the global decline is about to pick up speed!!!   Suggested months ago to keep and close eye on the Shanghai index and I still feel we should!!!