China ETF Has Investors Cautiously Optimistic

In this type of economic environment, a double bottom “bullish reversal” formation is surely a site for sore eyes. This technical pattern is made up of two consecutive troughs with a minor peak in the middle. Add that to an upside breakout of an overall downward trendline and you’re looking at some good bullishness.

China has taken its fair share of beatings over the past year which is reflected in the weekly price chart below. The beginning stages of this bottom were set in place by a bullish crossover on the MACD when the (12, 26) moving average line in blue suddenly jumped above its counterpart, the EMA (9) line shown in red.

click to enlarge

The only thing preventing the China ETF (FXI) from taking off was the Directional Movement Index (DMI), which finally gave in to bullish pressures and formed a positive crossover of its own between the DMI+ and DMI- blue and red lines.

Additionally, I have targeted the key point where the Relative Price Strength (RSI) indicator broke through its own psychological barrier at the halfway 50 mark for the first time since early 2008. For each of these indicators I have marked the point of reversal with a green dot.

While I do believe the FXI has a good shot at gaining more ground, I would like to mention that investors only remain cautiously optimistic here. The reason for this warning being that there is stiff resistance near $40/share. Additionally, it is worthwhile to note that the recent breakout from its downward trend line was accomplished on below average volume, which isn’t great for those looking to ride the uptrend for a while.

Keep your eyes open and enjoy the short-term ride.

Disclosure: no position

Comments

[ron_paulite:]

FXP is a better buy.

Apr 19 10:09 AM

[Mad Hedge F...:]

This should be a core long. The one screaming buy out there now are the emerging markets. The US, Europe, and Japan are now committed to spending trillions of dollars to shock the global economy back to life. This is costing the emerging economies nothing, and gives them a free ride back to prosperity. IT turns out that the smaller economies are financially better off than the big ones, with a decade long export boom blessing them with massive foreign exchange reserves and little debt. China, Russia, India, Brazil, and Turkey will be the big beneficiaries. You can buy the specific ETF’s for these countries, or go with the generic iShares MSCI Emerging Market ETF (EEM), which has already started to outperform US markets in a big way. It’s a once in a century opportunity to buy the highest growth corners of the world’s economy at severely knocked down prices.

Apr 19 11:11 AM

[mcl_mixer:]

The only problem I have with FXI is that's it's almost impossible to find anyone who isn't bullish on China right now. Like the US markets, it's made an almost vertical climb in a very short period of time. Could be time for a pullback. Long term though, China and the Emerging Markets are the place to be.

Apr 19 11:35 AM

[Dustinian:]

I prefer the holdings of PGJ. But anyone should bullish an either one long.

Apr 19 12:10 PM

[RiskReturnO...:]

EWT offers best of both worlds -- you get emerging market growth playing off China, and you get Nasdaq like performance playing off tech sector. Currency is weak now, so exports should bounce back; added kicker from being friendly to China.

Apr 19 07:24 PM