I've highlighted the Shanghai index many times in my commentaries, pointing out that a multi-year flag/pennant pattern was forming. On April 12th the Shanghai was at the top of this pattern and my advice was to harvest gains and lower risk exposure because key multi-year resistance was at hand (see post here). Since that time the Shanghai index is down over 20%! Any global impact during that time? here have been few places to hide! Stock markets around the world are lower, and broad based Commodities indexes (CRB/CRX) are lower too. Is the Great Escape part 2 in play?

 

 

When it comes to portfolio construction for professional and individuals, the Shanghai index was suggesting back in April to lower risk exposure. The chart above is sending another key message for portfolio construction! If this crossroads of support DOES NOT hold for the Shanghai index, the odds of GE2 picking up speed is huge, and the message that would be sent by a breakdown would be to have risk exposure down to a minimum!

Investors might have wished they had dialed back risk exposure when the Shanghai index broke the bottom of the multi-year flag/pennant pattern back in May (see this commentary). Don't miss this opportunity to do the same if support does not hold in the Shanghai!

 

(c) Kimble Charting Solutions
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