After the Shanghai Composite index had its biggest one-day sell off in 8 years yesterday Zhang Xiaojun, spokesperson with the China Securities Regulatory Commission (CSRC), said the China Securities Finance Corporation would “continue to buy stocks to stabilise the market”.
This morning during Shanghai’s early acute weakness the “State Planner” was rolled out to try to calm the market. He said that China “will guide capital flow to support the real economy” and that authorities are playing “great attention to the recent market fluctuation.”
Then, as if on cue, the PBOC joined the fray by letting loose the monetary howitzer with the injection of another 50 Billion Yuan into money markets via its repo operations today.
But the irony in Chinese authorities fighting the market, and trying to hold stock prices up, is that they’re at war with the greatest ally – the market itself and the potency of the 200-day moving average.
It’s a widely watched indicator by technical traders and prices this morning bounced once they touched the 200-day moving average level. That’s worth noting because, for all the focus on a 20% fall being a bear market, many traders use a simple indicator for the bull/bear status of the asset they are trading – and no prizes for guessing which one. When the market is above the level of the 200-day moving average, they judge the price action as being bullish, while a slip below marks a change in the outlook to bearish.
It’s simplistic, but so often used.
What’s also important is that it is now one year since the Shanghai Composite index closed below this important support level. That means the Chinese stock market surge is one year old.
Today’s early weakness tested support, but for the moment the market has held.
The day’s trade hasn’t ended yet. But happy birthday bulls.
Here’s the chart.