FXI Looks Poised to Extend Rally

The iShares FTSE/Xinhua China 25 Index (FXI), which tracks a basket of Chinese companies, has recently broken out of a consolidation pattern and appears to be headed higher over the coming days/weeks. The Chinese market has been a relative outperformer compared to US markets holding its October lows even as the S&P fell to new depths back in November.

Going back to the short term high made on November 4th, the FXI has repeatedly made an assault on the $28 level. However, after each failed attempt, a higher low was made forming a bullish pennant. On December 8th, it broke through the resistance at 28 on heavy volume which supports a continuation higher. You’ll also notice that the recent run from the $22 level has seen increasing volume which is also bullish (click on chart to enlarge).

Given how fast the Chinese market has risen, it is probably due for a pull back. In fact, breaks like these typically see a retest of the break point. However, I would certainly be a buyer on weakness below $30, placing a stop below the rising trend line at around 27. My initial target is the $33 level. Be mindful that while this bullish action fits with my long term favorable opinion of the Chinese market, there is a substantial downtrend on the longer term chart that has to be hurdled before I’m convinced the bear market for China is over.

Comments

[chinesezodi...:]

Breakout on heavier volume, clearly... and remember, stock markets will often reverse 6-9 months before the economy does...

2008 Dec 21 10:26 AM