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China's Stock Traders Are Obsessing Over This Technical Signal

China's Stock Traders Are Obsessing Over This Technical Signal

(Bloomberg) -- Just 34 points stand between a recovery in China’s stocks and the end of the bull market, according to chart watchers.

The Shanghai Composite Index has twice tested the upper band of a key support channel this month in intraday trading, at 2,838 points, before bouncing back by the close. That gap was formed by the difference between the gauge’s closing level on Feb. 22 and its opening price on Feb. 25, the following session. Its 5.6% rally that day was the biggest since 2015.

The key question for technical analysts is whether the index will fail to hold above the support level, and close below the lower band of the gap at 2,804 points. That would be a bearish sign for an index that’s already lost 12% since its April peak. Some say the gauge would then head toward this year’s intraday low set in January, implying another 15% slump from Monday’s close.

China's Stock Traders Are Obsessing Over This Technical Signal

There are still hopes for a rebound as long as the gap remains unfilled, according to Lv Changshun, a money manager at Beijing Dajun Zhimeng Investment Management Co.

"There are bulls that are still cautiously guarding the gap," he said by phone. “If it falls through without a fight, the index would likely march toward 2,440 points.”

The Shanghai Composite fell as much as 1.5% Monday to 2,838, before recovering most of the losses and closing just 0.4% lower. It rose 1.1% by 10:52 a.m. local time Tuesday.

To contact Bloomberg News staff for this story: April Ma in Beijing at ama112@bloomberg.net

To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, Philip Glamann

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With assistance from Bloomberg