Shanghai Composite Faces 20 Year Support Line; Would a Break Below Even be Relevant?

Chart below shows the SSEC is approaching 20-year support line (1).

Presumably this line is very important from a technical standpoint.

One would, upon first glance, assume that a break below it would usher in very bad things for the global economy and risk assets given the importance of China and the age of the support line at hand.

However, what if we suggested something crazy?

What if we suggested that not only will the SSEC break below line (1) in the chart above but that in doing so, it will prove largely irrelevant?


Because following its 2007 bubble top, the path the SSEC has taken closely resembles the average path other bubbles have taken off their tops in modern history.

With the SSEC now 246 weeks from its 2007 high, the comparison below seems to be quite clear in suggesting that the index, should it continue to track the path the average bubble has taken, likely faces ~100 weeks / 2 years of listless trading lower before we can expect any type of rebound in prices.

Currently the SSEC trades at ~38% of its peak 2007 value.

The average bubble appears to bottom at ~30% of its peak price, implying the index could decline to ~1,775, or another 16%, before it bottoms out.

Our broader point is that history suggests the informational content delivered by the SSEC at this point off its 2007 bubble peak may not be so relevant in providing read-throughs to the rest of the global economy and the future direction of other asset prices.

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