Remember the "must hold" 2,600 level for the Shanghai Composite? It just broke…
We began predicting lower prices for Chinese stocks back in April this year. As expected, they fell later that month and into May. And just weeks ago, we updated you on a vital number in this downtrend… the 2,600 level on the "Dow Industrials of China," the Shanghai Composite.
China is the world's largest exporter… so share prices of its biggest companies are important gauges of manufacturing activity. The Shanghai's 2,600 level is the area where it stopped falling and found a toehold. But on Tuesday, the Shanghai composite fell 4.3%, blew through 2,600, and closed at a 14-month low.
This is a bad sign for the global economic recovery. Stocks tend to "price in" what's coming a few months down the road. Considering Europe makes up about 20% of China's overseas sales (its largest market), we take the Shanghai's failure as a signal the global economic recovery is getting weaker… even "getting dead." If you still have money in the reflation trade, you need this index to rally.