Kimble adds that if the Shanghai Composite does violate support, the subsequent decline could be as much as 30% or more.
There is anecdotal evidence that some traders are preparing for a decline in Chinese stocks. Year-to-date, the ProShares UltraShort FTSE/Xinhua China 25 (NSYEArca: FXP) and the Direxion Daily FTSE China Bear 3X Shares (NYSEArca: YANG) have combined to add almost $22 million in assets.
Although has recently been light in YANG, the ETF has seen modest creation activity over the past month, according to Direxion data.
“So far the poor performance of the Shanghai index has had little impact on the stock markets around the world, as many are at or near all-time highs. It could pay to keep one eye on what the Shanghai index does in the next few months, in case support would fail to hold,” notes Kimble.
ProShares UltraShort FTSE/Xinhua China 25
