China Bubble Continues to Correct Itself

Who would have thought 4 months ago that the Chinese market would pull back as radically as it has in such a short amount of time? Every bubble is going to burst but with the Olympics around the corner, common logic was the rally would continue until after the summer.

Peeking close to 220 at the end of October, The iShares FTSE/Xinhua China 25 Index (FXI) is now down to 127, a 42% decline. Benefiting from the decline and making the most of a bad situation is a new(er) Exchange Traded Fund called the Proshares UltraShort FTSE/Xinhua China 25 (FXP). This fund reached a new high yesterday, moving 2.5% higher as the Chinese along with the US market continues to show signs of problems.

For technical traders, the FXI has broken through resistance and the US market is not forming a bottom formation but hitting lower lows each week. Stocks may rally in the short term as the Federal Reserve continues to be very active, but these rallies will represent an opportunity to buy the FXP or short the FXI as the China bubble continues to correct itself.

Disclosure: none

Comments

[User 86999]

"... FXI has broken through resistance and the US market is not forming a bottom formation ..." ?

[nick gogerty]

rice bowl cracks
nickgogerty.typepad.co...

[StevePatterson]

The Nasdaq and the S&P both hit new fresh lows on Monday and have not formed a bottom. The Dow is starting to look like a bottom with Monday being the correction that did not make a new low but we need another day or two to see if the upside leg will extend.