We ended last week with another relief rally as we expected. We saw a nice 25 point bounce off the lows. I think this week will be somewhat calmer as we wait for the next catalyst.
On the daily chart, we are currently in a makeshift range. At this point whichever side is tested next will likely see a breakout. I think there is a better chance that we see a small pullback tomorrow (without substantial news) so a breakout might have to wait till the middle of the week.
If we do see decent follow though on this rebound, I still think the bears will return in the coming weeks, unless we have a decisive break of the all time high. So I will be looking to open up a short position with a stop slightly above the all time high.
1. The government is essentially buying stock
2. China is even buying small stock
3. New stimulus
4. More government spending
5. Over half of China’s stocks have stopped trading
6. Big shareholders can’t sell for 6 months
7. No more IPOs (for now)
8. Central Bank slashed rates
9. Investors have a lot of leeway now on collateral
10. Devaluing the yuan
I think #5 is huge because this implies that no one actually knows the true value of the Chinese stock market. With over 50% of the stocks not trading, the market could be much lower than the indices are showing. Even with these measures, and maybe because some of them, a crash like this is still a virus and will infect other areas of their economy.
My medium term models are bearish.
My short term models are bullish.
– Trader Tony