Stock markets on knife edge

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Considering last week’s plunge in equities around the globe, I stated: “Looking at longer-term (monthly) data, it is premature to argue that the U.S. cyclical bull market has ended, but a worrying picture emerges when considering the Shanghai Composite Index (SSEC). Not only has the Index broken below its key 10-month (200-day) moving average, but the momentum oscillator (ROC) in the bottom section of the chart below has fallen below the zero line which indicates a primary bear signal.”

After a small uptick on Monday, the SSEC is again trading lower this morning. The Chinese stock market was the first to turn the corner after the credit crisis sell-off, but it now seems to be topping out and could provide the leash for leading global markets lower. For a very clear perspective of my concern, let’s consider the point-and-figure chart of the SSEC below. (This is a chart consisting of columns of X’s [showing price rises] and O’s [showing price falls] arranged on a square grid. When the index increases, a rising column of black X’s is created – a rally. When the index falls, a descending column of red O’s appears – a decline.] The chart shows the SSEC on a knife edge at double bottom support at 2,650. It is trading at 2,648 at the time of writing!

Source: StockCharts.com

As far as the American stock markets are concerned, the point-and-figure chart of the NYSE Composite Index shows how close it came to a very serious breakdown below 6,650 on Friday before yesterday’s reversal. My stance remains one of caution until more evidence emerges that last week’s lows will hold.

Source: StockCharts.com

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Stock markets on knife edge
TheTechnicalTake: Shanghai Composite
Read more on Shanghai Composite Index (SSEC) at Wikinvest
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