Hey folks, the Shanghai Composite, which has been leading the US market for about a year now, has hit its first level of support. I would expect a bounce in China, which of course will offer hope to the US equity bulls.

Last week, I pointed out some key technical levels on the Shanghai Composite Index. See figure 1 a weekly chart. Last week, we were 7% above the first support level, and this week we are at those levels. I would look for Chinese markets and possibly copper and crude oil to stabilize at these levels. It should be noted that crude oil and copper have continued to sell off this past week, and these economically sensitive commodities did not participate in the bounce that was seen with equities.

Figure 1 Shanghai Composite/ weekly

In terms of offering hope for the equity bulls, of course, any story can be (and will be) spun positively. From a technical perspective, it still is and always has been my contention that investor sentiment must turn bearish (i.e., bull signal) and key support levels must be broken before a new trading rally can start. If this doesn't happen, then it will be the same old story of quick rallies and sudden sell offs ala March to October, 2007. In hindsight, that was a market top, but it wasn't confirmed until the first bull signal (i.e., when investor sentiment turned bearish) failed to lead to a meaningful bounce.