Courtesy of Doug Short.
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The Shanghai Composite created a multi-year flag pattern, reflected by a series of higher lows and lower highs. A flag/pennant pattern does a poor job of predicting future direction, yet once a breakout/breakdown takes place, the move is usually large. The pattern suggested harvesting gains at the top of the flag/pennant pattern on April 12th (see post here).
After resistance held the index in check in April, the Shanghai index broke support in May (see post here) for the first time in years! This breakdown was suggesting that investors should reduce risk exposure in stock and commodities. What has happened to risk assets since the Shanghai breakdown? Stocks and Commodities have been soft around the world; Copper had its worst single month decline in 25 years.
The breakdown of support in May was a clear signal to reduce risk exposure to stocks and commodities. In the chart above the Shanghai index is attempting to break a crossroads of support. The break of support in May impacted portfolios around the world, and if support is taken out again, risk assets could move even further to the downside!
(c) Kimble Charting Solutions
blog.kimblechartingsolutions.com
