SSEC fails at crucial resistance; Where is the National Team?

SSEC failed break at resistance

Back in October, I wrote that 3500 – 3600 was a critical zone for the Shanghai Stock Exchange Composite Index. This was a historical resistance which Chinese investors thought would become support. Especially a level which they expected the Chinese ‘National Team’ or China Securities Regulatory Commission to step in to organise buying at the government’s behest.

From a member of our community,

When Shanghai Composite fell to 3500, many investors entered the market thinking that the level could serve as support. They saw market correction until then as a throwback. Many thought ‘National Team’ will hold the line. These people were mistaken. I am afraid the current rally is not a real recovery.

Importantly, we thought that with the previous correction attended by high volume, a big portion of investors holding on to losing stocks would be looking for a way out. Or a level.

It is very conceivable that a significant portion of participants are holding on to losing positions and looking for a way out. This raises the probability that there is at least one more down leg for Shanghai Composite. Question: what levels are bears looking at?

What better level to exit than a past resistance, especially one that has a lot of significance to market sentiment.

 

Shanghai Composite just failed this level; CSRC quiet

Investors ready or not, here it comes. Because this was what Shanghai Composite just did on Friday.

Shanghai Composite H4 chart

Shanghai Composite H4 chart | Source: Investing.com

  1. Shanghai Composite made a failed break above 3600, is now trading below the zone.
  2. It printed a triple top bearish reversal pattern at the top and is now trading below neck line.
  3. Price action above 3500 likely to be bull trap.
  4. Friday’s price action was very bearish with 5.5% loss.

 

It is not just the technical movement that is scary however but the disquieting significance that history might have just repeated.

From Bloomberg, ‘China Stock Bulls Hit Breaking Point as State Dials Back Support

On Friday, there was little sign that government-run funds had stepped in to ease the selloff. PetroChina Co., long suspected to be a target of state-backed fund buying because of its large weighting in the Shanghai Composite, sank 5.7 percent. While government intervention has typically showed up in the last hour of trading, the Shanghai Composite extended losses in the final 60 minutes to close near its lows of the day.

“I don’t think any government can support the stock market forever,” said Paul Chan, the Hong Kong-based chief investment officer for Asia excluding Japan at Invesco Ltd., which oversees $791 billion globally. “The government is not committed to selling now, but eventually. That’s the overhang.”

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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