Chart of the day: Shanghai faces headwind?

Mainland equities have moved into the sentiment spotlight in the past week, with both the Shanghai Composite and Hang Seng indicators pushing into extreme optimism territory. In Shanghai's case, the degree of optimism evident in the sentiment barometer indicator is consistent with a near-term retracement after its 12 per cent rally since the end of June, which in part reflected the less downbeat profile of macro news flow emanating from the mainland. Since 2007, such levels of extended optimism have quickly unwound, with the index down three months later about 60 per cent of the time. A near-term pullback could see support at 2,200 to 2,250 points.

David McBain is a technical strategist at Absolute Strategy Research