Friday’s note drew attention to the selloff in Chinese equities, states Ian Murphy of

Bearish sentiment continued overnight with the CSI300 closing 3.06% lower as authorities locked down the city of Shenzhen, an important tech hub.

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It is rare for a broad stock market index to stay below its -3ATR channel on a weekly chart for a prolonged period, and a relief rally back to the EMA usually follows when the weak hands have been washed out, but it doesn’t look like we are there yet.

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US equity markets reversed on Friday with the S&P500 (SPX) closing below the -1ATR on a daily chart accompanied by the price bar reverting to red, meaning the EMA and MACD-H both ticked down (right above). On the weekly chart (left), the price bar is also red and continues to trade below the -1ATR line on this longer time frame.

The Pessimism Indicator, which counts the number of stocks making new 20-day lows, ticked up and closed above 10%, the threshold level above which a bullish move is unlikely. Composite Help is back below zero, and stocks do not go up when this leading market indicator is going down.

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