Shanghai: SSE Composite Index (.SSEC) Stock Recovery Nearing $1 Trillion Is Drawing Skeptics

Shanghai: SSE Composite Index (.SSEC) Stock Recovery Nearing $1 Trillion Is Drawing Skeptics

Shanghai: SSE Composite Index (.SSEC) Stock Recovery Nearing $1 Trillion Is Drawing Skeptics

Concern is mounting over the speed of a nearly $900 billion rebound in Chinese equities that’s been driven by bets of sustained government support.

The CSI 300 index of stocks in Shanghai and Shenzhen has climbed 10% since a record sell-off earlier this month, wiping out the slide following the end of the extended Lunar New Year break due to the coronavirus outbreak. The ChiNext gauge of smaller companies, typically the most speculative part of the market, has popped 21% from its bottom to be the best performer in Asia Pacific this year.

But the central bank’s move to withdraw another 220 billion yuan ($31.5 billion) from the banking system on Tuesday citing ample liquidity, after pulling out a net 700 billion yuan the day before, may show the risks of chasing further gains. The CSI 300 index closed down 0.5% Tuesday while the ChiNext climbed 1.2%, again notching its highest finish since December 2016.

“Shares are acting like we’re in times of exuberance, not the middle of a huge public health crisis,” said Shi Junbo, a fund manager at Hangzhou Xiyan Asset Management Co. in Beijing. “But as a rule, when shares rise solely on liquidity hopes, they will without exception tumble. We’re not getting away from the impact of the virus on markets once and for all.”

The ChiNext recouped post-holiday losses just two days after the A share market reopened to the virus scare on Feb. 3 with a record $720 billion plunge, followed by the CSI 300’s jump on Monday to surpass its close before the break. While the ChiNext is up 21% this year, the CSI 300 is down 1%. Many overseas markets are up so far in 2020 despite the spreading of the virus globally, with the S&P 500 Index rising 4.6%.

However keen Beijing is to mitigate economic pain, officials are also facing constraints on aggressive monetary easing as they struggle with a mountain of debt built up in the aftermath of the 2008 global financial crisis. The government’s 4 trillion yuan stimulus back then helped give rise to a ballooned shadow banking industry that threatened to destabilize the financial system, a heavily indebted state sector that local authorities bear contingent liabilities for and increasingly leveraged households as home prices surged.

In downplaying deleveraging efforts of the past few years, China’s government has cut taxes, lowered interest rates and allowed local governments to accelerate borrowing.

“You can’t expect China to keep rolling out supportive policies,” said Dai Ming, a Shanghai-based fund manager with Hengsheng Asset Management Co. “The regulators will likely monitor the effects of those on boosting the economy, before their next policy moves.” He plans to continue selling into the rally.

The rapidly rising valuations since the post-holiday slump have driven some investors to wonder how long the bullishness may last. Some are getting ready to take profit and exit once the outbreak shows signs of steady easing. The government’s historical caution against inflating asset bubbles, the still-unknown economic impact of shutdowns due to coronavirus-caused movement curbs and uncertainty over how the epidemic may evolve are weighing on their sentiment.

To be sure, some traders are less worried, arguing that the health crisis has created an unprecedented situation and that the government will go all out to put a floor under the economic slowdown.

Technical Indicators

Overall, the bias in prices is: Sideways.

The projected upper bound is: 3,112.93.

The projected lower bound is: 2,861.53.

The projected closing price is: 2,987.23.

Candlesticks

A white body occurred (because prices closed higher than they opened).
During the past 10 bars, there have been 9 white candles and 1 black candles for a net of 8 white candles. During the past 50 bars, there have been 34 white candles and 16 black candles for a net of 18 white candles.

A long lower shadow occurred. This is typically a bullish signal (particularly when it occurs near a low price level, at a support level, or when the security is oversold).

A spinning top occurred (a spinning top is a candle with a small real body). Spinning tops identify a session in which there is little price action (as defined by the difference between the open and the close). During a rally or near new highs, a spinning top can be a sign that prices are losing momentum and the bulls may be in trouble.

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 91.5324. This is an overbought reading. However, a signal is not generated until the Oscillator crosses below 80 The last signal was a buy 9 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 53.45. This is not a topping or bottoming area. A buy or sell signal is generated when the RSI moves out of an overbought/oversold area. The last signal was a buy 9 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 84. This is not a topping or bottoming area. The last signal was a buy 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 2 period(s) ago.

Rex Takasugi – TD Profile

SSE COMPOSITE closed up 1.349 at 2,984.972. Volume was 62% above average (neutral) and Bollinger Bands were 138% wider than normal.

Open     High      Low     Close     Volume___
2,981.4102,990.6002,960.7752,984.97231,166,590,976
Technical Outlook 
Short Term: Neutral
Intermediate Term: Bearish
Long Term: Bullish
Moving Averages: 10-period     50-period     200-period
Close: 2,907.13 2,980.50 2,945.53
Volatility: 15 28 22
Volume: 28,987,844,608 22,959,683,584 19,518,660,608

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 is currently 1.3% above its 200-period moving average and is in an downward trend. Volatility is high as compared to the average volatility over the last 10 periods. Our volume indicators reflect volume flowing into and out of .SSEC at a relatively equal pace (neutral). Our trend forecasting oscillators are currently bearish on .SSEC and have had this outlook for the last 11 periods. Our momentum oscillator has set a new 14-period high while the security price has not. This is a bullish divergence.

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