Do or Die Time for China

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Last summer, I made several posts on iBC detailing the inverted head and shoulders bottom in the Shanghai Composite Index. I laid out where I thought the measured move target would take us, in the event of an upside confirmation. Indeed, the Shanghai went above and beyond the 3,050 target.

Since then, China has seen a steep correction amid concerns of a slowdown. As you can see in my updated daily chart below, the Shanghai has completed a perfect gap fill back down the “neckline” of the inverted head and shoulders from last summer. Keep a very close eye on this level. If the bears are able to puncture this prior neckline, then the whole bullish setup over the past 6-8 months will be in jeopardy. However, if we see some strong buyers come back in the next few days and weeks, then the much-anticipated China collapse will likely be put on hold for a least the next few quarters. I believe this setup, regardless of whether bulls or bears win, is relevant to the health of the S&P 500.

In other words, despite the downtrend over the past few months, the Shanghai is not quite as bearish as many would have you believe…yet.

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