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Is it important what one sixth of the worlds population does? I believe its worth paying attention too for sure! The Shanghai index has had a rough go of it since the highs of 2009, losing over half its value. So far this large decline HAS NOT seemed to impact the majority of stock index’s in the States and Europe, as most are at or near all-time highs.
The Shanghai index looks to be creating a multi-year descending triangle pattern, which is bearish the majority of the time. This pattern suggests that if sellers break support line (A), the decline is the size of the height of the triangle (B) in the chart above. If this would come true, the Shanghai index would lose almost half of its value.
Is this pattern read correct? Too soon to tell! Odds are high that should this support line break, selling pressure in this weak index, would increase. Should the Shanghai index fall this percentage, would it impact stock markets in the States and Europe? So far it hasn’t. Could a decline of that size could create a tipping point for the global macro economy? Stay tuned!