"The credit data lifted expectations on market liquidity and economic fundamentals," said Wang Jianhui, a Beijing-based analyst with Capital Securities Co. "It provided an excuse for investors who wanted to bottom fish stocks after last week’s correction. But it’s more likely a technical rebound as there hasn’t been any substantial change in fundamentals."

The decline in mainland shares came after some companies issued profit warnings. In Shenzhen, Jiangling Motors Corp. sank by the 10 percent daily limit after it predicted an 84 percent decline in first-quarter net income from a year earlier.

Shandong Chenming Paper Holdings Ltd. slid 8.9 percent after saying its first-quarter profit may plunge 94 percent to 96 percent.

"While the macro numbers suggest a recovering trend, things are still looking weak in the micro segments including corporate profits," said Shen Zhangyang, a Shanghai-based strategist with
Northeast Securities Co.

Eoin Treacy's view

The catch-22 facing policy makers is if they stimulate too much, they risk a bubble developing but if they don’t do enough, they risk a contraction. That is a clear reflection of the role liquidity has played in the evolution of the bull market over the last decade and how reliant on stimulus it is for continued expansion. They generally err on the side of caution so that is supportive of continued support.

China has been tightening for three years and is only now beginning to let credit grow again so it is unlikely they are about to reverse course so soon. The CSI300 has a short-term overbought condition so there is scope for a reversionary move towards the mean but a sustained move below it would be required to question medium-term scope for continued upside.

The Federal Reserve was shocked into a reversal of policy in the 4th quarter of 2018 and is likely to pause in its rate hiking zeal until after the US Presidential Election. The rationale for such a long pause is they have already said they will not raise rates this year and are will be unlikely to do so in an election year lest they be accused of meddling.

The S&P500 is right in the region of its peak. I saw this S&P500 RSI chart quoted in a news story today which shows a clear bearish divergence. The Index hit a new high in October but the RSI made a lower high and the indicator is now back testing that peak.

This chart of the Philadelphia Semiconductors Index, offers examples of a bearish divergence in January 2018 and a bullish divergence in December 2018. The more recent signal suggests the return to outperformance is sustainable despite the short-term overbought condition.