China Tests and Holds 50-DMA... For Now

After a 10.5% decline from its August 4th peak, the Shanghai Composite index tested and held its 50-day moving average (DMA) overnight with a rally of 0.89%. It is likely that if the index had failed to hold its moving average, this morning's pre-market setup would have been a lot less positive. While the bulls here and in China would probably have preferred a more decisive bounce off of the 50-day, they'll take what they can get for now.

click to enlarge

Comments

[Macro_Man]

"For now" is the operative word. If it hovers around these levels without tanking, can help the S&P get towards 1,100 and then watch out below.

Anecdotally, it seems many of the traders are just playing the momentum without conviction. I myself got a little long, with full put protection. And looks like many are bringing their stop loss orders tighter and tigher. So, when stop loss gets triggered, many will bail. Some are even prepared to turn around and get short.

This makes it look like when the turn eventually comes, it could be very sharp and steep...perhaps even a crash.

2009 Aug 13 08:44 AM

[dybydx]

a stock market crash in PRC is rather moot and irrelavent. those are state owned enterprises anyways. they cant file for bankcruptcy like lehman bros or GM.

2009 Aug 13 12:14 PM

[Suzanne H.]

I am long FXP with a tight stop at 9.56. If the 50 d is going to hold even for a pop, I want to be out of my inverse position, but if it doesn't hold and it is look out below, I want to be short (long the double inverse obviously). The Shanghai has stalled at the 38% retrace, same as the spx (can see charts legacyfunds.wordpress.com/). The risk/reward is favorable here. Must add this is for educational purposes only.

2009 Aug 13 12:27 PM

[recif2000]

Hello Suzanne,

I wanted to go long FXP but it seems the correlation is rather weak with regards to the Shanghai index performance. The index used (FXI), is mainly composed of H shares trading on the Hong Kong exchange (Hang Seng) . From the information I have seen, the two markets are not perfectly correlated with less amplitude exhibited by the Hang Seng.
What is your take on that? Where you able to make positive returns during the 5% drop in Shanghai?

Thank you

On Aug 13 12:27 PM Suzanne H. wrote:

> I am long FXP with a tight stop at 9.56. If the 50 d is going to
> hold even for a pop, I want to be out of my inverse position, but
> if it doesn't hold and it is look out below, I want to be short (long
> the double inverse obviously). The Shanghai has stalled at the 38%
> retrace, same as the spx (can see charts legacyfunds.wordpress.com/).
> The risk/reward is favorable here. Must add this is for educational
> purposes only.

2009 Aug 13 06:03 PM

[StevenMK]

Hopefully this is the breathing w the market needs to stay up

StevenMK

2009 Aug 14 11:43 AM

[Suzanne H.]

Yes you are correct, but don't worry about FXP tracking perfectly with the index, apply technicals to FXP itself but watch the general movement in the Shagnhai, Hang Seng, all of Asia to get a macro picture. All you need is a trend in FXP and a means to get out quickly when it fails. You can use a 50ema on a 60 min chart or probably the longest I would use is a 21dma (daily chart -- example at legacyfunds.wordpress.com/). Use ATR to set a volatility stop (subtract that value from whatever moving average you use). Paper trade that until you get comfortable and find what works for you, but always have a stop calculated before you put in your buy order (and don't risk more than .5 to 1% on each trade), and keep moving the volatility stop up as FXP goes your way.

Hope this helps, and good luck

On Aug 13 06:03 PM recif2000 wrote:

>
> Hello Suzanne,
>
> I wanted to go long FXP but it seems the correlation is rather weak
> with regards to the Shanghai index performance. The index used (seekingalpha.com/symbo...),
> is mainly composed of H shares trading on the Hong Kong exchange
> (Hang Seng) . From the information I have seen, the two markets are
> not perfectly correlated with less amplitude exhibited by the Hang
> Seng.
> What is your take on that? Where you able to make positive returns
> during the 5% drop in Shanghai?
>
> Thank you
>
> On Aug 13 12:27 PM Suzanne H. wrote:

2009 Aug 14 04:01 PM