The End of the Shanghai's Long Run

With a plunge in Chinese stocks in recent days, the Shanghai Composite was finally pulled below its 200-day moving average for the first time in a year, ending its 3rd-longest run above its average in 30 years.

The last three times it ended a long uptrend, it continued to fall in the months ahead. The three previous signals saw the index rebound instead. So, this could be a decent indication of what kind of market environment we're in with these stocks.

Internal breath measures on the Shanghai are only registering minor oversold readings, if anything. They're nowhere near washout levels. That's fine during a bull market - if this is transitioning to a new bearish regime, then they have a lot further to fall before considering that any kind of oversold mean-reversion bounce is likely.

For what it's worth, the ends of long uptrends in the Shanghai preceded relatively weak short-term returns in the S&P 500, but 2-3 months later it was higher after 5 of the 6 signals.