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?
Well another month, quarter and half 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 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, which has been in play for 25 years at (1) above.
As the Shanghai 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.
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 in 2007. A large decline followed that 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 month's 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.