Shanghai: SSE Composite Index (.SSEC) Ahead of Chinese New Year, central bank lets loose $115bn

Shanghai: SSE Composite Index (.SSEC) Ahead of Chinese New Year, central bank lets loose $115bn

Shanghai: SSE Composite Index (.SSEC) Ahead of Chinese New Year, central bank lets loose $115bn

China’s central bank will lower the level of cash reserves that commercial lenders are required to maintain, hoping to stimulate loans to small businesses and avert any cash crunch during the Lunar New Year in late January.

The 0.5 percentage-point cut to the required reserve ratio for big banks, effective Monday, will lower the rate to 12.5% in the first reduction since September.

The People’s Bank of China estimates the reduction will free up about 800 billion yuan ($115 billion) held at the central bank. Cash on hand is expected to rise by 120 billion yuan alone for rural and small urban commercial banks, which do much of their lending to small and midsize enterprises and sole proprietorships.

The benchmark Shanghai Composite Index rose following the PBOC’s announcement, ending 1.15% higher at a roughly eight-month high. 

China’s economic slowdown, made worse by the U.S. trade war, came just as Beijing embarked on an ambitious effort to reduce overall debt in 2017, causing a sharp increase in bankruptcies among smaller enterprises. In 2019, corporate bond defaults reached a record 160 billion yuan.

Many people shop and travel during the holiday, and depositors withdraw wads of cash as the date nears, leaving banks with tighter liquidity. This year’s holiday comes in late January, earlier than usual, and money market watchers think a 2 trillion yuan shortage this month is possible.

Bank lending in China also tends to be seasonal, typically spiking in January. Banks are concerned about liquidity during this period, which may fuel reluctance to lend to smaller companies.

“The total liquidity in the banking system will remain basically stable with appropriate flexibility,” the central bank said Thursday. “Such countercyclical adjustment of monetary policy is appropriate and sound. Our stance of sound monetary policy remains unchanged.”

As the economy slows, the move appears designed to restrain financial market demands for more extreme action, such as quantitative easing.

Technical Indicators

Overall, the bias in prices is: Upwards.

Short term: Prices are moving.

Intermediate term: Prices are ranging.

Note: this chart shows extraordinary price action to the upside.

By the way, prices are vulnerable to a correction towards 2,961.60.

The projected upper bound is: 3,148.51.

The projected lower bound is: 3,027.63.

The projected closing price is: 3,088.07.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 6 white candles and 4 black candles for a net of 2 white candles. During the past 50 bars, there have been 29 white candles and 21 black candles for a net of 8 white candles.

A rising window occurred (where the top of the previous shadow is below the bottom of the current shadow). This usually implies a continuation of a bullish trend. There have been 4 rising windows in the last 50 candles–this makes the current rising window even more bullish.

Three white candles occurred in the last three days. Although these candles were not big enough to create three white soldiers, the steady upward pattern is bullish.

Momentum Indicators

Momentum is a general term used to describe the speed at which prices move over a given time period. Generally, changes in momentum tend to lead to changes in prices. This expert shows the current values of four popular momentum indicators.

Stochastic Oscillator

One method of interpreting the Stochastic Oscillator is looking for overbought areas (above 80) and oversold areas (below 20). The Stochastic Oscillator is 94.3355. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a sell 8 period(s) ago.

Relative Strength Index (RSI)

The RSI shows overbought (above 70) and oversold (below 30) areas. The current value of the RSI is 73.28. This is where it usually tops. The RSI usually forms tops and bottoms before the underlying security. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a sell 8 period(s) ago.

Commodity Channel Index (CCI)

The CCI shows overbought (above 100) and oversold (below -100) areas. The current value of the CCI is 206.This is an overbought reading. However, a signal isn’t generated until the indicator crosses below 100. The last signal was a sell 8 period(s) ago.

MACD

The Moving Average Convergence/Divergence indicator (MACD) gives signals when it crosses its 9 period signal line. The last signal was a buy 18 period(s) ago.

Rex Takasugi – TD Profile

SSE COMPOSITE closed up 35.073 at 3,085.198. Volume was 70% above average (neutral) and Bollinger Bands were 34% wider than normal.

Open     High      Low     Close     Volume___
3,066.3363,098.1003,066.3363,085.19829,247,021,056
Technical Outlook 
Short Term: Overbought
Intermediate Term: Bullish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 3,013.71 2,946.97 2,965.67
Volatility: 14 13 20
Volume: 21,556,099,072 16,777,478,144 21,064,720,384

Short-term traders should pay closer attention to buy/sell arrows while intermediate/long-term traders should place greater emphasis on the Bullish or Bearish trend reflected in the lower ribbon.

Summary

SSE COMPOSITE gapped up today (bullish) on normal volume. Possibility of a Runaway Gap which usually signifies a continuation of the trend. Four types of price gaps exist – Common, Breakaway, Runaway, and Exhaustion. Gaps acts as support/resistance.
SSE COMPOSITE is currently 4.0% above its 200-period moving average and is in an upward trend. Volatility is Our volume indicators reflect moderate flows of volume into .SSEC (mildly bullish). Our trend forecasting oscillators are currently bullish on .SSEC and have had this outlook for the last 14 periods. Our momentum oscillator is currently indicating that .SSEC is currently in an overbought condition.

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