Asian and European stock markets continued their Feb. 27 sell-off throughout their Feb. 28 trading days, but this time they are taking their cues from developments outside of China.

The Feb. 27 sell-off started with the Chinese government hoping to inject some realism into domestic markets that had begun trading with absolutely no grounding in reality. Speculation of the worst sort -- individuals taking out loans to play the stock market -- had taken hold, and China feared its exchanges had lost all utility.

So the Chinese deliberately scared the speculators in hopes of engineering a stock crash. Specifically, the State Council formed a new commission charged with clamping down on such credit-to-shares activities. They also tightened up the banks' reserve requirements with intent of choking off some of that credit at its source, as well as floated a rumor that China was about to introduce a capital gains tax.

It worked. Way too well.

Some two-thirds of the stocks on the Shanghai exchange fell by their 10 percent daily limit, forcing a suspension of trading in their shares. Overall the exchange dipped by 8.84 percent, disturbingly close to the maximum theoretically possible. Making matters more politically complicated for the leadership, the sharp drops triggered a raft of margin calls that led to sell-offs in Asia, Europe and finally the Americas.

Those sell-offs continued Feb. 28 in Asia and Europe, but for a separate set of reasons. On Feb. 27 the U.S. exchanges were the last to react to the Chinese contagion, with the Dow dropping 3.5 percent. However, normally the U.S. exchanges set the tone for the next trading day. That meant that on Feb. 28 most exchanges were trading not on Chinese news, but American. By the time the world spun back around to morning in New York, the system seemed to have digested the worst and as of the time of this writing, noon Eastern, the U.S. exchanges were trading slightly up for the day.

As if to accentuate the fact that China trades on a rationale different from market fundamentals, China's main exchanges ignored the broader international market Feb. 28 and closed strongly higher -- and for reasons just as arranged as the reasons for their Feb. 27 plunge.

Headlines across China screamed not that China had suffered a meltdown Feb. 27 -- or that the world had followed the Chinese down -- but instead that the central government had no intention whatsoever of implementing a capital gains tax. Exactly the sort of thing that people who make their meat and potatoes on stock markets love to hear. The Shanghai market obediently rebounded nearly 4 percent.

Plain and simple, the Chinese government was surprised that the magnitude of the effects of yesterday's efforts and pushed efforts into reverse. But the Chinese exchanges are still massively overvalued, and the Chinese government still intends to do something about it. More changes -- and crashes -- will come.