Coolhand's Market Analysis

On Friday, price on the S&P 500 dropped below last August's intra-day low, but managed to close a higher price point. That simply puts the index at the edge of a precipice. We've seen this before. The index gets close to falling off a cliff and then does an about face. I am not so sure it will be so accommodating this time as the Wilshire 4500 and EFA (S and I fund equivalents) have already broken through last Summer's lows.



The chart shows us that price is sitting on an area of support. Momentum is still falling.

One of the big reasons for the current sell-off cited by pundits is China's questionable economic stability. Their economic managers have been toying with the country’s exchange rate in an effort to bring stability back to their stock market. But it has roiled global markets in the process.



Interestingly, a chart of the Shanghai Index tells a somewhat similar story to the S&P 500. Price is now sitting in an area of support off last August's lows. Momentum is still falling. One difference between this index and the S&P 500 is that the 50 dma never crossed back up through the 200 dma since those lows were hit. Its recovery has been weak. While no conclusions can be derived from this it certainly calls into question whether the Shanghai can recover fast enough to prevent a waterfall sell-off. A decisive break of that support area could trigger one.

The Shanghai Index may be the proverbial canary in a coal mine. Should that index break through those August lows with conviction, our own market is very likely to follow.