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Stock Market Trading Setup for Monday February 3 – China Sinks, Wall Street Dinks

The PBoC did a nice job of stopping a worldwide crash this morning. It pumped a gazillion yuan into their banking system and bankers instantly found a way to get it out of the country to bolster foreign markets.

At home, not so much.

Liquidity moves markets!

Follow the money. Find the profits! 

This is a weekly bar chart of the Shanghai Composite. Look hard. See that little green bar on the far right, way down below the rest of the bars. That’s today and it’s one helluva gap! As a result, the weekly momentum indicator flipped to an ugly sell signal. Maybe, it’s only the beginning, oh oh oh oh whoa oh oh oaoaohhhh (sing it, bears)!

China Stock Price Chart - Shanghai Composite

Meanwhile, back on Wall Street, the S&P fucutures (ES) looked like this at 6 AM in Noo Yawk. So far, it’s only a pullback and maybe not the beginning of anything.

S&P 500 Futures Chart

Notice the indicated support around the 50 day moving average. That showed up in my proprietary measures as well. So it’s no surprise that we are seeing a bounce this morning.

But will it stick? Aye, there’s the rub!

On Friday, the 5 day cycle projection pointed to a low of 3200-3225. They got there. And 3213 was a clear support level. Hot stove touch there.

If PBoC Can’t Stop a Meltdown, What About the Fed?

So we get a tiny bounce this morning, but this market is not out of the woods. If PBoC can’t stop a meltdown in China, where it is all powerful, ultimately the Great and Powerful Oz Fed may not be able to stop one in the US.

Today’s action could be a significant tell. If the rally fizzles around or below 3240, then it will retest 3213. If that fails, look for 3208. And if that fails, 3185.

Conversely, if they clear 3240, there’s clearance to around 3260 before hitting resistance. Here’s the S&P cash, hourly chart.

S&P Index Hourly Chart

Happy trades to you, until we meet again! For the big picture, and my tactical recommendations, see the weekly Technical Trader report.

What You Should Do With “On One Hand, On the Other”

There’s a lot of that infuriating, “On the one hand–On the other hand,” stuff in today’s report. On the one hand, I hate when that happens. On the other hand, it is what it is.

But the good thing is that there are clear parameters that should tell us what to expect as the week begins.

Technical Trader subscribers, click here to download the report.

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Lee Adler

I’ve been publishing The Wall Street Examiner and its predecessor since October 2000. I also publish LiquidityTrader.com, and was lead analyst for Sure Money Investor. I developed David Stockman's Contra Corner for Mr. Stockman. I’ve had a wide variety of finance related jobs since 1972, including a stint on Wall Street in both analytical and sales capacities. Prior to starting the Wall Street Examiner I worked as a commercial real estate appraiser in Florida for 15 years. I also worked in the residential mortgage and real estate businesses in parts of the 1970s and 80s. I have been charting stocks and markets and doing analytical work since I was a teenager. My perspective is not of the Ivory Tower. It is from having my boots on the ground and in the trenches of the industries that I analyze and write about today. 

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