By Christopher Diodato
You can hear the same question across most media outlets. What recovery? Most world markets made their final top in August of 2011, right when the US had its credit rating downgraded. Since then, America has been the only major index to continue to make new highs. This could lead one to think that the recovery has reached a point of stagnation.
However, it gets worse. The Shanghai Composite index looks like it never even had a recovery. Here's the chart.
Note the target of 1018 in the long term. What's the adage? A mania always ends below the starting point?
So, why place importance on the Shanghai Composite? China is an emerging market, and investing there is still a high risk/high reward situation. The China 25 index (NYSEARCA:FXI), (NYSEARCA:FXP) is what some would call the "government monopoly index," while the composite contains other, smaller, companies, and is therefore more representative of the health of the Chinese economy.
Essentially, it's the riskiest index of a risky country, and therefore, it usually leads both market tops and bottoms. So, when a sell signal is issued in this index, as it was when it broke 2100 last night, expect the rest of the market to follow through soon.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.