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“Defeat is a state of mind; no one is ever defeated until defeat has been accepted as a reality.” – Bruce Lee
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After the first positive week of August, stocks are looking to close out the month on a positive note as we head into September on Friday. It’s a slow day for data today, but we’ll have a number of important reports throughout the week with Consumer Confidence, a ton of labor related reports, GDP, and the ISM Manufacturing report. It’s also the last week of August heading into Labor Day weekend, so there could be air pockets to the upside and downside throughout the week.
Well, it started out as a good day for Chinese stocks. After last week’s “15-minute rally”, Chinese stocks kicked off the week with a 5%+ surge at the open following news that the government would cut the tax on trading and limit the supply of IPOs. The point of maximum optimism was the opening print, though, and from there, the CSI 300 sold off and finished right near the lows of the day. It was still a positive day with a gain of over 1%, but as far as 1% rallies go, this was one of the more disheartening ones.
As far as 5%+ opening gaps are concerned, they don’t occur very often. Today’s was the first since July 2015 and just the seventh since 2005. Besides the one in July 2015, the other five all occurred during 2008.
The chart below shows the performance of the CSI 300 since 2005 with red dots showing each of the prior days that the CSI 300 had a 5% gap at the open. While three occurred near the lows in 2008, the others came in the middle of major legs lower. It’s also worth noting that of the seven 5%+ gaps in the CSI 300 (including today’s), four of them were followed by declines of at least 4% from the open to close.
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