Double Top In China; Shanghai now cheaper than the nasdaq

Overnight in China, the Shanghai Composite index fell 5.25%, completing what appears to be a double top chart formation.  Technical analysts contend that when an index or a stock fails to exceed a prior high and then goes on to make a new low, more losses are in store.  While the reliability of this formation is open for debate, it is a pattern that tends to receive a lot of attention when it develops.

The recent declines in China's stock market coupled with the rally in the Nasdaq has also led to another interesting development - Chinese stocks currently have a cheaper valuation than the Nasdaq.  Based on the trailing twelve month earnings of their components, the Nasdaq Composite currently trades at 40.1 times earnings, while the Shanghai Composite is trading at 37.9 times earnings.