For some perspective on one of the more important global stock markets, today’s chart focuses on Chinese stocks and presents the current trend of the iShares FTSE/Xinhua China 25 Index (FXI). As today’s chart illustrates, Chinese stocks have endured what amounts to an extremely wild ride since 2005. The FXI trended upward at an ever accelerating rate (i.e. parabolic) from 2005 to Q4 2007. As the credit bubble began to unravel, so too did Chinese stocks with the FXI trending downward at an ever accelerating rate from Q4 2007 to Q4 2008. Beginning in Q4 2008, the FXI surged — gaining over 155% trough to peak. Since that post-financial crisis peak back in Q4 2010, Chinese stocks initially treaded water but more recently have embarked on a steep downtrend. More recently, Chinese stocks did rally but just turned back down after hitting resistance (see red line).

Considering China’s significant contribution to the global economy, this recent stock market action is most definitely a red flag.

This is an excerpt from Chart of the Day as it appeared on August 20, 2012. For updates or to read the current version of this post in its entirety, please click here.

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