Here we are looking at a weekly chart of the Shanghi Composite. Wall St. talking heads are fond of touting the China economy as a reason to be long US companies. As technical traders, we make our judgement based on the chart pattern and time pattern counting. One look at this chart and its clear the Chinese investor does not share the same positive outlook as the US investor.
We have an overbought index back in 2009 represented by the RSI top. This was exactly a 38% retrace of the 07-08 decline. We have now broken below the 200 day mva, confirming the bear trend and can assume the next leg will be completed around the 2300 level, or 38% retrace of the advance from the lows.
Experts say the markets are forward looking 6 months. Its clear that US companies are dependent on China to do well; what does this chart forecast over the next 6 months about the Chinese economy?
Maybe nothing, as there main street economy is more divested from their stock economy. But, we can deduct that this index is front running the US indexes by 6 months, thus forcasting for us things to come on Wall St going forward in 2010.
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