Authorities in Beijing have been wrestling with traders in Shanghai for control of the stock market for the best part of a month now. They have suspended stocks, banned short selling, locked in substantial shareholders, chased those sellers they believed had malicious intent, and this morning we discovered China’s stock market regulator is now targeting high-frequency traders.
But even with all these measures the Shanghai composite index is well below the high it reached of 4,184 after the authorities aggressive intervention with a close yesterday at 3,622.
That’s still 250 points or 7% above the low of 3,373.
The technical outlook is extremely precarious once again with the market resting on the 200 day moving average. That’s the level traders often use as a simplistic indicator of whether a market is in a bull market (when it’s above the average) or a bear market (when it’s below) market.
Last week we highlighted that on the first anniversary of the Shanghai bull market the Composite index had fallen back to test the 200 day moving average. It’s there again after last night’s close and before the market opens this morning.
In developed markets that would be a signal that the trend may be about to change. Or just as often that support is about to be found as buyers re-enter the market.
But there is an old trading adage which says “don’t try to catch a falling knife”. That’s one of the reasons prices have been falling again. Traders are spooked by weak and weakening Chinese data and fear they’ll be locked into shares if they don’t get out.
So, in China it might indicate an aggressive response from authorities fighting hard against Mr Market but increasingly looking like they might be trying to hold back the tide.
The battle rages.