shnaghaireversalpatternatresistancejuly1CLICK ON CHART TO ENLARGE

Much of the attention around the world seems to be revolving around a small country called Greece. What about the most populated country in the world (China), any key messages coming from there of late?

Well another Month, Quarter and Half a year are in the books. With this in mind I wanted to look at Monthly action of the hottest stock market in the world, the Shanghai Index. Above looks at the Shanghai index over the past 25-years. The 100%+ rally over the past year has pushed the Shanghai index up to its 23% Fibonacci ratio and a long-term resistance line, that has been in play for 25-years at (1) above.

As the Shanghai index was hitting this dual resistance last month it created a large reversal pattern. Could a reversal pattern after a large rally become important? Below looks at large reversals after at least 100% rallies in a year.

shaghaibearishreversalafter100rallyjuly1CLICK ON CHART TO ENLARGE

As you can see, seldom has the Shanghai index created a 10% reversal pattern after a 100% rally in 12-months. Until this past month, only one time in the past 25-years has the index created at least a 10% reversal pattern after a 100% rally in 12-months, which was 2007. A large decline followed this reversal pattern back in 2007. For sure we don’t have a large number of samples to compare what took place last month. One should not lose sight of how rare last months action was and what its long-term message/implications could be!

No doubt the world believes what happens in Greece is important for global stock markets.  I am a fan of leadership, more so than being concerned about lagging stock markets or countries.

What the Shanghai index does going forward at (1) in the chart above (25-year resistance and Fib 23% level) should end up being very important for stock markets around the world in the next 6-months!

A break above dual resistance at (1) after this rare reversal pattern would be bullish for this global leader, lets see if it can accomplish it going forward!