We have attempted to keep professionals and investors aware of a key flag/pennant pattern in the Shanghai index for almost a year. Back in April the Shanghai index was at the top of the flag pattern and we suggested to “harvest gains” in this commentary. The pattern was suggesting that if a breakdown of support should take place in one of the largest countries in the world, investors should look at lowering equity exposure. Back in May the Shanghai index did break below support in the Flag/Pennant pattern. Has it influenced the price of stock around the globe? Time will tell, but at this time the S&P 500 is 10% lower since the Shanghai breakdown.
Now a more important support line is breaking, one that has been in place for over 20-years, one that held even during the 2008 bear market. The breakdown of the flag/pennant was sending two messages: 1) global markets should be soft going forward and 2) risk exposure should be lowered. The break of the 20-year support line further reinforces the twin messages.
From A Message from the Shanghai Composite.
Images: Flickr (licence attribution)
About The Author
My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.
My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.
Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.
Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool