All is not well in the global markets. Here’s why

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This has been one of the hardest reports to write. Why? To have to contemplate that one of our key global-growth engines is back down to levels of four years ago despite a combined governmental stimulus by every major country to counter what was seen by some as ‘Financial Armageddon’, is disturbing.

That market – Shanghai – is now lower and has remained lower than when the US announced its first quantitative easing package (QE1) back on 6 March 2009. China’s economy, as reflected in the Shanghai Index, gets an equivalent sugar rush when the US stimulates for a variety of reasons. This means the US and China stimulus effect has had limited impact.

The chart below reminds us that despite all major Western indices tracking higher and looking like they could even break new highs that leaves behind the troubles of the GFC, we are really in a muddle-through scenario.

Bottom line, we will prevail. This index represents a certain amount of excessive speculation in the years gone by, and for it to come back to where it is now probably represents the ‘washing out’ of some of the excessive speculative behaviour.

Even so, and I don’t want to be too alarming, but we do need to be careful. This index is showing us that all is not well.

Shanghai Composite 2,115: 4 Year Chart. “Shanghai On The 2,100 Level Precipice ”

Negatives

1) The 200-day moving average is still pointing down

2) 2,049 marks a minor level, 3.1% lower

3) 1,814 is a major level, 14.2% lower

4) It has broken a key level created on 6 March 2009 – an all time low in the US S&P500 index, when Shanghai was 2,172.

5) 2,100 was a resistance that on 9 December 2008 was rejected, and then the index fell back to 1,814 (or 13.6% lower). This was back in the “bad old days” of the GFC volatility.

6) I say this again. If it breaks below 2,100, we have a range of 14.2% within which it needs to settle itself.

7) We really need to see a bounce this week! I sound like a broken record now.

This is awful.

Positives

1) 2,100 is a round number support, with significance that dates back to 9 December 2008. But the fact I’m talking about this turns it into a negative.

2) 2,100 has been bounced off twice now – on 31 July and last Friday on 17 August.

3) I can’t see any.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Anyone should consider the appropriateness of the information in regards to their circumstances.

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