Shanghai Index: Correction Stalls, But Color Code App Scandal Weighs

The Shanghai index ended the day marginally higher, with a 0.09% gain. This comes as bulls try to stabilize the index asset, which has been under severe pressure in recent months from the endless lockdowns that the Chinese authorities have slapped on the industrial city of Shanghai and the capital Beijing. 

The impact of the lockdowns is also telling on listed companies. Chinese e-commerce giant Inc reported that its 618 sales only showed a 10% rise year-on-year, down from 2021’s 27.7% increase, as the company laments what has been its lowest sales growth on record.

Adding to the mix is a ballooning controversy over the COVID Health Code App, a colour-coded code introduced by the Chinese authorities. The app uses a traffic light-based system to assign a health risk score to residents based on where they had visited. 

Some residents in Henan Province say their app turned red without ever stepping into the hot zones, preventing them from accessing their bank funds in what is now a growing scandal. Caixin Global reports at least one instance where a Henan resident has sued health authorities after her app’s colour change prevented her from attending a court hearing regarding her house’s demolition.

China is pursuing a zero-COVID policy, which means that discovering a handful of cases can lead to the lockdown of entire provinces. Presently, Beijing is under lockdown and sections of Shanghai are also facing the same fate, just a week after getting a reprieve from a 2-month restriction.

The Shanghai index continues to respond to the situation, gaining some ground after authorities said there were no severe cases in the latest COVID-19 flare-up in the city.

Shanghai Index Outlook

The corrective decline seen on the daily chart appears to have found support on the 3568 support line. Price action is trading within the range with this price level as the floor and 3636 as the ceiling. A floor breakdown leads to a continuation of the corrective move, with 3490 (8 February and 28 February highs) and 3413 (23 February and 3 March lows) appearing as the initial targets to the south. An additional pivot comes into the picture as 3369 (30 November 2021 and 13 January 2022 highs) but is only available if the price action breaks below the 3413 support.

On the other hand, the reversal of the correction resumes when the bulls uncap the 3636 ceiling. This action clears the way toward 3722 (14 March and 18 April highs). The 3789 resistance (28 March 2022 and 2 June 2022 highs) awaits the bulls on a further advance, leaving 3905 (11/19 May 2022 highs) as yet another northbound barrier. The price activity must transcend the 27 April/10 May double top to continue the uptrend. 

Shanghai Index: Daily Chart