After spending six weeks in a sideways, coil-type of pattern at the bottom of its August 2009-June 2010 bear phase, the Shanghai Composite has broken down into new bear-market low territory Tuesday. In fact, the SH Comp declined a sizable 4.3 percent, which has spilled over into other Asian and European equity markets Tuesday morning. Indeed, U.S. futures are under intense pressure as well in the aftermath of the plunge in the Shanghai Composite. What's next for the China equity index -- and the iShares FTSE/Xinhua China 25 Index (FXI)?

The most optimistic of my downside projections points to a low in the 2410-2390 target zone, which is just 1 percent beneath today's low-close session finish. That said, neither my near-term pattern work nor my intermediate-term technical work argue for a significant low in the vicinity of 2400. More than likely, the next meaningful low that results in the initiation of a base formation at the conclusion of the post-August 2009 bear phase in the Shanghai Composite will arrive in the vicinity of 2160/10 or 2000.

If such a scenario unfolds, we should expect "sympathetic negativity" in the U.S. equity indices in the day/weeks ahead.

Mike Paulenoff is a 26-year veteran of the financial markets and author of MPTrader.com.