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Instead of breaking out to the upside above 2700 today, the Shanghai Composite instead rolled over into a bout of profit- taking (-1.8%). That said, however, let's notice that the weakness has not violated any meaningful technical levels, which are clustered in the 2593/90 area, and again down at 256.00. A downside sustained breach of 2564 -- the prior pullback low -- will indicate that the Jul 2-Aug 19 upleg is complete, and that a significant correction is in progress that could press the index back to 2500-2470, or even revisit the July low area at 2400-2320.
Right now, the most bullish scenario calls for a bit more weakness into the 2600 area followed by an upside reversal that initiates a new upleg. A climb that sustains above 2700 is needed to trigger upside acceleration. The $64K question is whether the SH COMP is leading the SPX or vice-versa? Let's notice that the SPX weakness today further diverges from the technically stronger SH COMP. I will be very interested to see if the China market can hold up despite the SPX weakness, which will further convince me that we are witnessing a major transition in equity-business-economic hegemony to the East from the West.
Mike Paulenoff is author of www.MPTrader.com, a real-time diary of his technical analysis & trade alerts on ETFs for precious metals, energy, currencies, and an array of equity indices and sectors, including international markets, plus key ETF component stocks in sectors like technology, mining, and banking. Sign up for a Free 15-day Trial!
