In this unprecedented bubble – now extended by unprecedented central bank stimulus – we’ve been looking for a major divergence to signal that this never-ending bubble is finally about to end (as it must, and will!).

But not yet in the U.S., or other developed world markets. Though the signs are developing…

However, there is a growing divergence globally between the developed and emerging countries that could prove to be illuminating.

Emerging country stocks have been tanking sharply since January…

And that could be the first “smoking gun.”

This mini-crash is being led by China. The Shanghai Composite is down 22% since its dead cat bounce into January 2018.

Let’s take a look at the chart below…

The second bubble peak on June 15, 2015 was followed by a dramatic crash of 35% in just over three weeks, falling to 45% on August 26, all this in a little more than two months.

That drop down bottomed out on January 27, 2016, at 2,638. It was down 49% from the 5,177 peak. The bubble first peaked (not shown) at 6,092 back in October 15, 2007, then crashed 72% over one year to 1,707.

The recent lows of 2,804 are now approaching the first crash low of 2,638. A break substantially below there would first head towards 1,700 support, and should ultimately drop as low as 1,000, which is a crash of 81% from the peak of the second bubble in 2015. And 84% down from the all-time high of the first bubble that happened in late 2007.

But this is not just a China phenomenon.

Emerging markets, in general, are crashing.

As of the June 25th low of $42.92, that index is down 18% from its high in January of $52.08.

Emerging countries have added the most to global debt since the 2008 to 2009 global financial crisis.

And they borrow mostly in U.S. dollars. That’s why they don’t like the rising U.S. short- and long-term rates, courtesy of the Fed, or the rising U.S. dollar, which they have to repay with.

The trade war is another thing that troubles emerging countries. The U.S. is the largest market for their resource exports.

See the problem they have with it?

This could be the first major divergence that foreshadows the next greater global financial crash and deleveraging, with more to follow.

I do think a new high in these emerging market indices is unlikely at this point, making this divergence more prophetic.

If a divergence between small- and large-cap stocks in the U.S. happened, it would second that motion!