Back on October 1st of this year, I highlighted the weekly descending triangle that was starting to become apparent on the Shanghai Composite. In particular, I noted:
In a brilliant misdirection scheme that only Keyser Soze could pull off, it may very well be that the issues in Europe and Washington D.C. are nothing more than red herrings that distract us from the real danger: A hard landing in China. We know that the Shanghai Composite has displayed all of the characteristics of a secular bear market since crashing in 2008 after an exuberant stock bubble. At issue now is whether we see a retest of those major lows down at 1,664…(O)n the weekly chart of the Shanghai..2,300 is an absolute monster of a key level to watch.
Presently, the Shanghai breached that key 2,300 area. Perhaps what I wrote back then is the case after all, as noted China bears James Chanos and Hugh Hendry have implied all along. In essence, Europe may be the great distraction from the damage sustained in China. Either way, from a stock trader’s perspective, the bulls had better pray that this move is a mere false breakdown. Otherwise, those 2008/2009 lows will suddenly seem not so far away for galvanized China bears to attack. It is also hard to imagine U.S. stocks being able to manage any type of upside if the Shanghai breakdown proves true.
Thus, China merits your close attention.