I last looked at the Shanghai Composite Index in May, 2010. (Click here and here.) My interest in the Chinese market is the possibility that it is a leading indicator for the US indices. Back in May with the Shanghai Composite off its highs by 17%, I stated "that US equity bulls should be concerned that the Chinese market has been diverging from the US indices. After all, the Shanghai Composite led the US markets off the bottom back in late 2008 and early 2009." So once again let's look at the technicals for this important market.

Figure 1 is a weekly chart of the Shanghai Composite Index. Key pivot points are shown with the black and red dots. 2660 remains resistance, and this is the level we identified back in May. 4 weeks ago this index closed at 2658; yesterday prices were hovering around 2600. A weekly close above 2660 would be bullish. Support comes in at the most recent key pivot at 2421. For now, the Shanghai composite remains in a tight 240 point, and prices currently are at the upper end of that range. It is my expectation that the lows of this price range will be tested.

Figure 1 Shanghai Composite/ weekly