CHART OF THE WEEK: THE BREAKDOWN IN CHINA IS GETTING WORSE

With all the stock and currency panics this week, we almost forgot to check in on the giant breakdown in China's stock market. Almost…

For the past several months, we've highlighted how the "Dow Industrials of China," the Shanghai Composite, has been stuck in a bearish series of "lower highs and lower lows." On Wednesday, we noted how the index suffered a major breakdown that took it to its lowest point in 2010 (A).

Just hours after our note, the Shanghai suffered another major breakdown… this one took it within a whisker of its September 2009 low (B). This is extraordinary weakness from a major stock index.

And keep in mind this huge problem for China's export machine: Europe makes up about 20% of China's overseas sales, its largest market. If Europe's debt crisis continues to worsen (and it will), expect China's economy to slow… expect this downtrend to get worse. And who knows, it could slow China's economy so much that Jim Chanos' dire prediction comes true.