China was off 91bps last night which is a calm night by recent standards. Say what you want about China and the Chinese local market but despite all the volatility and fear the index has actually held the 200dma on the downside.
Last night the index tested but held the 200dma one more time marking the ninth time since early July that the CSI 300 has battled above the key level.
With major support at 3500 and Trendline support at 3800 the market is stabilizing with or without effective policy support ( you make the call on that). If you remove the blow off top created from mid-March through mid-June and the ensuing plunge that took the index almost all the way back to mid-march levels, you have effectively “taken the top off the teepee”. You now have created a better foundation to move higher with lower volatility.
What does this mean for EM markets overall? Simply, EM can’t rally without China (FXI, quote) which further implies that China cant be spiraling lower. Does China need to breakout again? No, in fact the healthiest trading action would be to see China rally to test 4200 on the CSI 300 and fail but consolidate above the 4000 level.
